Five Benefits of the FHA Mortgage

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With a growing real estate market, more and more people are becoming homeowners. The problem, however, is that many homeowners still do not understand the terms of their mortgages. A lack of knowledge and misunderstanding is what led to the most recent real estate crash. New homeowners were given mortgages that they did not understand and eventually, lost their houses. Fortunately, the first time homeowners program, or FHA loans, is currently the most common type of mortgage and it has many benefits.

Fewer restrictions to buying
Conventional mortgages tend to have stricter buying requirements. While conventional might work for some home buyers, many people are unique buying situations. For example, conventional mortgages often require that home buyers have steady employment for a minimum of two years. This means that the buyer remained in the same industry for those two years. Employees who have recently switched jobs, industries, or went from school to employment might have a harder time getting qualified. With FHA loans, lenders take these unique buying situations into account with fewer restrictions to buying.

Lower down payment requirement
You could have the best credit, the best job, and even great mortgage rates, but you are often unable to purchase a house without a down payment. With conventional mortgages, the down payment amount can be as high as 20% of the mortgage amount. This is a significant amount of money that many buyers do not have sitting around. According to the 2017 Home Buyer and Seller Generational Trends Report conducted by the National Association of REALTORS, 13% of all buyers cited that saving for a down payment was the most difficult step in the home buying process. With FHA loans, the down payment requirements are much less, allowing more people to become home buyers.

Lower credit requirements
There are many things that factor into a credit score. You could even be timely with all of your bills and have bad credit. One of the most common problems is a lack of credit. If you have stayed away from credit cards and car loans, you might not even have a credit account. Credit is required to purchase a house. In most cases, you have to have great credit. That is, unless, you choose FHA loans.

One of the benefits of FHA loans is that the credit requirements are not as strict. To get an FHA loan for a mortgage with a down payment as low as 3.5%, the borrower needs a credit score of 580 or higher. Those with credit scores between 500 and 579 must make down payments of at least 10%. With conventional mortgages, the required credit scores are much higher. The FHA loan allows those with poor credit to achieve homeownership.

A more personalized approach to home lending
Traditionally, mortgages are a paper process. The lender looks at the provided documents and then makes a mortgage decision. If there are any unique financial situations, such as student employment or non traditional credit problems, they are not even considered. With FHA loans, the person is looked at as a person, rather than a document. For example, people with credit scores under 500 are generally ineligible for any loan, even FHA loans. However, the FHA will sometimes make allowances for applicants who have a nontraditional credit history or insufficient credit, if they meet other requirements.

Protection of purchase
FHA loans also protect home buyers from purchasing a house that is not worth its value and that is likely to have many problems. The FHA buying process requires that an inspection and an appraisal are completed. If the house does not pass inspection or the appraisal does not meet the asking or offer price, the loan will not go through. This protects buyers from getting stuck in purchases that are not worth the cost.

The FHA loan is the most common type of mortgage today. It has many benefits including fewer loan restrictions, lower down payments requirements, less credit needed, and an overall protection for new home buyers.