Each year, over five million homes are sold in the United States.
Are you tired of wasting money on rent? If so, buying a home is your best bet. For most first time home buyers, an FHA loan is a great option. You may be asking yourself, what is a FHA loan?
These loans that are insured by the Federal Housing Administration, which is a government agency. Generally, home buyers who use these loans will have to pay for mortgage insurance. This type of insurance is intended to reduce the risk a lender takes should a person default on their loan.
Want to know more about this type of loan? Read below to find out about the benefits of using an FHA loan.
FHA Loans Have Lower Down Payment and Credit Score Requirements
When applying for a conventional loan, you will need nearly immaculate credit and a hefty down payment to qualify. The majority of Americans have less than stellar credit, which is why FHA loans are so popular.
Credit scores as low as 580 are accepted by FHA lenders. You also will only have to come up with a down payment of three and a half percent. This means you will be able to purchase the home you love without having to jump through an endless array of hoops.
Many conventional home loans require applicants to have a credit score of between 620 to 640 in order to qualify. People approved for these types of mortgages are also required to pay up to a ten percent down payment. There is no mystery why FHA loans are so popular with home buyers all over the country.
These Loans Have Low Closing Costs
Another advantage of using FHA loans to purchase a home is the low closing costs they provide. Sellers are allowed to pay up to six percent of the loan amount to cover a buyers closing costs. Most conventional only allow sellers to pay three percent, which leaves buyers on the hook for more money.
Most first-time buyers have the money for their down payment, but not much else. The extra three percent allowed by FHA lenders can really help you financially when trying to get into your new home quickly.
FHA Loans are Assumable
Did you know that FHA loans are considered assumable? What this means is that a buyer can just assume the FHA loan a homeowner has rather than applying for a new mortgage. This is good news for home buyers looking to avoid paying for the cost of rising interest rates.
You need to be aware that assuming an FHA loan is a complicated process. Buyers will still have to meet all of the typical requirements for mortgage approval and may have to pay a larger down payment. The amount of money you have to put down on a home will depend on how much equity the seller has.
Working with a lender who has a great deal of experience with FHA loans is important. They will be able to guide you through the loan application process with ease.