If one goes the traditional route for buying a home, working with a regular bank, filling out all the paperwork, and going through the process of finding the home only to find out for one reason or another it’s just beyond reach, don’t take it personally.
This kind of situation is common. However, the FHA Loan, backed by the Federal Housing Authority it’s named after, provides the means for working people to get into a home without all the impossible hoops and cliffs to jump through and over.
Benefits of FHA Loan Financing
Why consider an FHA Loan in the first place? Aside from the fact that the traditional home mortgage process is highly restrictive, there are other benefits of FHA Loan financing as well. And these benefits are not always detailed out clearly so folks can make a proper comparison. Here are five that really make a big difference for most buyers and consumers:
A Smaller Down Payment Requirement
How often have you heard a friend or acquaintance say they would love to get into a house, but they can’t come up with the down payment? The down payment is a basic requirement in home buying, and a way for lenders to ensure that the buyer has a stake in the purchase.
With some of your own money involved, the lender believes you will have more incentive to stick with the loan and pay it back as promised. But many can’t make the down payment on homes today due to real estate prices. An FHA Loan directly impacts this problem by reducing the down payment requirement considerably.
A Lower Credit Score Needed
If you’ve had some financial issues before or have a lot of other debt, your credit score is going to be impacted and cause traditional lenders to shy away. In many cases the ideal buyer’s credit rating is so high, 2 out of 3 people don’t meet it.
An FHA Loan also makes it easier by requiring a lower credit score rating, far lower than conventional mortgages. Again, that makes it easier for someone to actually get approved.
Buyers are Allowed to Include Other Help
Some folks are afraid if they accept a gift it can mess up their loan application if they want to use it for a down payment. With an FHA Loan gift funds can be accepted from approved parties.
Sources allowed can include your family, a documented close friend, an employer (common when people move for a job), and a known charity.
The money has to be used as part of the purchase agreement, but it definitely opens the door for additional resources people can have access to.
No Penalty for Paying Back Early
Some lenders demand that a borrower run the life of a loan to maximize interest earned. And they will penalize an early repayment. FHA Loans have no such penalty, and FHA lenders welcome earlier payment any time. In fact, some participating lenders may even reward a bonus for faster loan repayment.
In some deals, sellers anxious to a close a deal may include benefits in a purchase. FHA Loans make it easy to include these benefits instead of barring them. The allowance can equal as much as 6 percent of the original purchase price. This can help offset repairs or sales tax charges on the purchase.
So, FHA Loans should always be considered even if not ultimately chosen. It’s frequently too good of a deal to pass up.