There are a few major government-backed mortgage programs that are enormously beneficial for many clients, and one of the most well-known here, particularly for first-time buyers, is the FHA loan. Short for a loan that’s backed by the Federal Housing Administration, the FHA loan program is one that’s meant to help make homeownership possible for buyers who otherwise would not have qualified for a typical mortgage – and that’s only a brief look into all the potential benefits that come with this program.
At Altius Mortgage and our partners with Mortgage Ogden, we’re happy to offer clients a wide range of home loan and refinancing options – including several programs ideal for first time homebuyers, the FHA loan often among them. Here are some of the major benefits of the FHA loan program to consider.
Lower Credit Requirements
One of the single most notable features of the FHA loan program is that it allows for buyers to qualify with a much lower credit score than many other types of mortgages. This makes homeownership more accessible to those who might not otherwise be able to get approved and make their dreams come true.
For instance, the FHA loan program minimum credit score is 580 – much lower than the average required scores for conventional mortgages, let alone jumbo mortgage loans. Depending on individual circumstances, this means that more people will be eligible to apply and take advantage of the benefits they offer.
Down Payment Requirements
Another great benefit of an FHA loan is that the down payment requirements are much lower than other types of mortgages. In many cases, buyers can put down as little as 3.5 percent of the home’s purchase price – making it easier for those with lower savings to get into a new house.
This low down payment amount is also a great way for clients to help protect their financial security in the long run. It allows them to keep more of their money in the bank, saving against future emergencies or investments instead. Additionally, buyers can make this down payment with a gift from a family member – making it easier for loved ones to help out if needed.
Less Time Required After Negative Credit Event
With many loan types, buyers might have to wait several years before being approved if they’ve experienced a major negative credit event. In many cases, this could prevent people from taking advantage of today’s great mortgage rates, such as situations where they’ve had a past bankruptcy or foreclosure.
The FHA loan program has much shorter waiting periods after such events – making it possible for buyers to get into the market quickly and reap the benefits of homeownership. For example, a conventional loan will typically require seven years to have passed since a foreclosure before the borrower can obtain a loan; with an FHA loan, however, this period is only three years.
Limited or Nonexistent Closing Costs
Another great benefit of the FHA loan program is that it can potentially reduce closing costs. This means that buyers won’t have to put down as much money upfront, saving their resources for other investments or expenses. The FHA loan also allows sellers to contribute up to six percent of the purchase price in order to cover buyer-related closing costs – making it easier to make a deal come together.
Affordable Mortgage Insurance
Mortgage insurance is a big part of what allows the FHA program to offer such low down payment requirements, but it also means that buyers are on the hook for premiums throughout their loan term. The FHA mortgage insurance program is still much more affordable than most other types of mortgages, however – helping to make things easier on everyone’s budget.
When considering an FHA loan, there are two forms of insurance you’ll likely have to pay:
- Up-front mortgage insurance premium: This is a one-time fee that’s paid when the loan is approved, and it can be rolled into the loan amount.
- Private mortgage insurance premium: This follows a sliding scale where you’ll pay different amounts depending on your down payment size. It will be added to each monthly payment for as long as you have the loan.
Lower Debt-to-Income Requirements
Debt-to-income ratio, or DTI, is the amount of your monthly income that goes towards debt payments. Most lenders have strict requirements on this metric, and FHA loans are no exception – but they are much more lenient than other loan types.
The maximum DTI allowed with an FHA loan is 58%, whereas conventional mortgages often require a ratio below 45%. This means that buyers with higher debt levels can still qualify for an FHA loan, as long as they meet other requirements and their overall financial picture looks good.
Allows for Non-Occupant Co-Borrowers
For those who don’t qualify for an FHA loan on their own, the program also allows for a co-borrower to be part of the equation. This is especially helpful for those situations where family members may have better credit or income than the primary borrower. Non-occupant co-borrowers are allowed with FHA loans, which means that someone who isn’t living in the property can still help with qualifying.
These are just a few of the many benefits that come from obtaining an FHA loan, and it’s clear to see why so many people choose this type of mortgage program. From lower down payments to co-borrowers and much more, FHA loans offer plenty of advantages. For more on this program, or to learn about any of our other home loan programs for first-time buyers or other clients, speak to our team at Altius Mortgage today.