Why Use FHA Mortgage Financing?
An FHA loan is a government insured mortgage which allows refinance flexibility for current borrowers who have limited equity and would-be homeowners the ability to purchase the home of their dreams even if they may have limited funds for a down payment.
These loans are funded by various lenders but are insured by the Federal Housing Administration in the case of a default. This way, the lender that originally funded the loan is able to recoup some of the funds. Due to this fact, lenders are able to offer better loans and more flexible loans to borrowers—loans they otherwise wouldn’t extend to borrowers if the FHA wasn’t directly involved. With its involvement, the FHA has certain requirements for borrowers and the properties. For example, an FHA loan can be used to purchase a property or refinance an existing mortgage; there may be requirements in terms of property type (e.g. one to four-family homes), a minimum credit score, debt-to-income ratios, and equity. For example, a refinance may be available up to 97.75% of a home’s value. That means there needs to only be 2.25% equity in the property. With purchase loans, a mortgage loan may be available with a 3.5% down payment.
But again, minimum credit scores may apply in each case. For example, a FICO score of 530 versus 580 may require a 10% down payment for a mortgage loan.
As already suggested, one of the distinct advantages of an FHA mortgage loan is the low down payment requirement (or low equity requirement for refinance mortgages). This allows would-be homeowners to purchase the home of their dreams home without necessarily coming up with a large down payment. With as little as 3%, anyone can potentially purchase a home. This is significant for the first-time homeowner who is entering the world of real estate for the first time.
Additionally, an FHA loan is generally easier to qualify for. Underwriting guidelines allow for more flexible credit, income, debt, and asset assessments. For example, while it may take a 720 FICO score to qualify for a prime, conforming Fannie-Mae mortgage, an FHA loan can be attained with a 530 FICO score. So borrowers with lower credit scores can potentially still purchase the home of their dreams, and begin building their credit scores.
Underwriting of FHA loans also takes into account circumstances when assessing debt-to-income ratios for the borrowers, allowing each situation to be assessed in its own unique way.
And one of the best parts of all of this: FHA rates, terms, and cost structures are typically very competitive. They’re so good that they are in line and comparable to regular, conforming mortgage loans. This provides FHA borrowers the same equal opportunity as everyone else.
Since 1934, the FHA has been helping Americans become homeowners. These loans benefit first-time homeowners, borrowers refinancing, low-income families, military families, and everyone else included in the entire borrower spectrum.
If you are considering purchasing a home or refinancing, always consider an FHA loan in your options. Let MortgageLoan Corp. help you with this assessment.
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