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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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Benefits of an FHA Loan

Benefits of an FHA Loan
Making the decision to buy a house is a big one, followed by the choice of which house to buy. The next biggest decision you make is going to be the type of home loan you need to go through with the purchase.

One option for financing your home is an FHA loan. These mortgages are insured by the Federal Housing Administration (FHA), a government agency committed to stimulating the American housing market, and create ways for people of all income levels to gain access to safe and affordable housing.

In addition to offering competitive interest rates, there are a number of reasons why FHA loans are one of the most popular loan types of mortgages for many first-time homebuyers as well as repeat buyers with lower credit scores. 

Flexible Down Payment and Credit Score Requirements
FHA loans are designed with first-time homebuyers in mind; younger borrowers who haven’t achieved a high credit score yet, and probably don’t have enough savings for a large down payment.  With this in mind, the FHA requires a down payment as low as 3.5% combined with a credit score of 580 or more to qualify for home loans, which is quite lower than the 620 minimum score and 20% down payment that is typically required by conventional lenders.

In the case of borrowers with even lower scores, the FHA allows a minimum score of 500 if the applicant can put up 10% toward the down payment. This is especially beneficial for borrowers who have suffered bankruptcy or foreclosure, which would preclude them from qualifying for conventional home loans.  

More Housing Options
The FHA’s aim is to expand housing opportunities for Americans, which is why FHA loans are suitable to finance various different property types. FHA loans can be used to buy single-family homes, multi-family homes with up to four units, manufactured homes on permanent foundations, and even condominiums.  

Open to All Income Levels
While conventional lenders can have set income limits to qualify for loans, there is no minimum or maximum income limit for FHA loans. Borrowers do not need a qualifying income, but they must show proof of employment, have at least two established credit accounts.  

Cheaper Mortgage Insurance
Many conventional lenders charge expensive Private Mortgage Insurance to borrowers with lower than necessary credit scores who cannot afford a 20% down payment. You can avoid this higher cost with an FHA loan, which requires the same Mortgage Insurance Premium, regardless of your credit score.  

Gift Funds Are Permitted
Even with a low, down payment requirement, the FHA allows the money to be sourced with “gifts,” which are funds not earned directly by the borrowers. This can include money from friends, family, a charity, employers, unions, or state and local government agencies, as long as the gifts are verified in writing by the donor.  

Non-Occupying Co-Signers
This is another advantage for first-time homebuyers with insufficient credit histories. While there are some restrictions, the FHA loans allow applicants to have a co-signer on the loan who does not plan to live on the property. This can be someone (such as a parent) with more established creditworthiness whose income and assets can be used to support the loan.  

The FHA loan has many features that appeal to a vast number of borrowers, but it’s best to consider all your options. Read up on the different mortgage types, and talk to your loan officer to see what the best move is for you!


Understand the Reasons for Private Mortgage Insurance
Carefully Read Your Closing Disclosure
Buying a Home With a Co-Borrower
See Your Credit Scores From All 3 Bureaus
See Your Credit Scores From All 3 Bureaus

FHA Loan Articles

When not to Consider Refinancing a Home

There are plenty of reasons to delay plans to refinance a home. One reason has made big headlines. When borrowers face higher interest rates than originally approved for, that is a good reason to wait to refinance.

How FHA Construction Loan Draw Disbursements Work

When you are approved for an FHA One-Time Close Construction loan, you get a single loan that pays for both the costs to build the house, and serves as the mortgage. One application, one approval process, and one closing date.

Mortgage Rate Predictions for 2024

In the last days of November 2023, mortgage loan rates flirted with the 8% range but have since backed away, showing small but continued improvement. What does this mean for house hunters considering their options to become homeowners soon?

Is It Cheaper to Buy a Home With an FHA Loan or to Rent?

In May 2023, USA Today published some facts and figures about the state of the housing market in America. If you are weighing your options for an FHA mortgage and trying to decide if it’s cheaper to buy or rent, your zip code may have a lot to do with the answers you get.

Why Do FHA Loans Have Borrowing Limits?

FHA loan limits serve as a crucial mechanism to balance financial sustainability, regional variations in housing costs, and the agency's mission to promote homeownership, particularly for those with limited financial resources.

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