Benefits of FHA Loans

2014/08/fha-300x200.pngBenefits of FHA Loans
FHA (Federal Housing Administration) is a division of the Department of Housing & Urban Development. It encourages home ownership and tries to achieve this with their FHA loan program. This program insures a home loan against default. Therefore, due to any unfortunate event, if the home owner can’t make the mortgage payments, the balance is paid by the FHA. This is the type of insurance, which made FHA loan extremely popular in the Middle TN real estate market as well. FHA loan offers a number of benefits to a potential home buyer. Some of them are:
Low Up Front Payment
As compared to conventional loans, the FHA loan requires a lower down payment. It can go as low as 3.5% or even 0% (popularly known as zero down payment) depending upon the borrower’s credit situation.
FHA loan can be issued for up to 115% of median prices up to a relatively humble dollar figure depending upon the neighborhood you are planning to buy home. That’s why; it is considered to be the best option for the first time and lower to middle income home. But to protect the institution, FHA also has some repair guidelines for a property to qualify. It won’t allow you to invest in a property which has lesser chances of reselling or which is in a very bad condition. These rules are pretty reasonable. A higher seller contribution is also permitted which is 6% as compared to 3% with a traditional loan. When you are negotiating your terms with a seller, you might ask them to pay all the closing costs. This will eventually decrease your “up front” payment drastically.
Low Interest Rates
Another major benefit of an FHA loan is their low interest rates. There is no penalty for the borrowers whose credit ratings aren’t that good. All of them pay the same rate. The mortgage insurance premiums are lower too because of the FHA backing. They are pretty low if compared to the traditional or conventional loans. All these factors eventually make the monthly payments lower too. This is one of the main reasons why FHA loans attract even those buyers who are qualified for conventional loans.
Mild Credit History Requirement
The FHA’s credit score or FICO requirement is as low as 530 only. So, if you want to qualify for the loan program, you just need to have a credit score of 530 or above. Obviously, borrowers with a better or higher credit score will have a competitive edge over others. But the low credit score doesn’t stop anyone from getting qualified for the loan. Due to this, prospective home buyers with low credit history can also get a loan and purchase a property in the Middle TN real estate market. Those who have gone through foreclosures or bankruptcies are also eligible for FHA loans if the certain criteria are met. One of them is that they need to have stable credit history for the last two years. Other borrowers only need one year history of good credit.