Do you want to become a homeowner today so that you can enjoy very low interest rates and increasing home prices? As of early 2017, the housing market is getting stronger, and it is a good time to buy your first home.
One of the most popular ways to buy a first home today is with an FHA mortgage loan. These loans are guaranteed by the Federal Housing Administration.
The FHA itself does not actually write the loans itself; it backs the mortgage with a guarantee to mortgage lenders. FHA will pay the loan off if you do not make the payments.
This guarantee of financial backing by FHA give lenders assurance that they will not lose money if the homeowner defaults.
The FHA program is a fantastic one, and that’s why so many first time home buyers embrace the program. Here are 10 great reasons to consider the FHA program for your home loan:
#1 You Can Put Little Down
One of the most difficult things traditionally about buying a home is saving thousands of dollars for a down payment. Many conventional lenders require you to put 20% down. This is just beyond the means of many people.
But an FHA first time home loan can be had for as little as 3.5% down. You do need to pay a monthly insurance premium so that the loan is guaranteed for the lender. But putting down only a few thousand dollars to buy a home is a huge benefit. And even better, you can get most of the down payment if you like as a gift from your family.
#2 Lending Standards Are Reasonable
FHA backing your loan means that lenders are much more willing to provide lenient underwriting standards. You will need to show that you have the ability to pay your loan and your other obligations with your income.
But FHA mortgages allow you to have a higher debt to income ratio than conventional loans. Further, you can qualify for a low down payment FHA loan with a credit score of around 620. Some lenders will have more demanding standards, but some lenders will work with you with a credit score that low.
#3 Low Interest Rates
FHA backed loans have a lower interest rate than even market rates sometimes because it is a lower risk for the lender. Note that the FHA does not have any say about the rate that you will pay; that is up to you to negotiate with the lender.
But it is really nice to know as a first time buyer that you can get a low interest rate even if you have average credit.
#4 Can Help Disaster Victims
There are natural disasters that occur every year, including floods, earthquakes and tornadoes. People who lose their home and most of what they own are facing a terrible burden.
But the FHA Mortgage for Disaster Victims Program can provide you with 100% financing through certain lenders. This program can be used to buy a new home or to reconstruct a severely damaged home.
#5 FHA Can Loan Money for Repairs
When you buy an existing home, you may need to do some repairs. But where are you going to get the money? An FHA home loan can have what is called an FHA 203 (k) loan on it as well. This will allow you to buy a fixer upper, and get as much as $25,000 to take care of needed improvements.
This can really come in handy because you would be hard pressed to borrow money to do renovations at a lower interest rate!
#6 FHA Title I Loans
After you get your home, even if you have little equity, you may be able to borrow money from an FHA-approved lender to do repairs. This is known as an FHA Title 1 Loan.
#7 Low Closing Costs
There are thousands of dollars in closing costs when you buy your home. These include credit report, inspection, appraisal, commissions and broker fees.
FHA does not determine what the closing costs will be, but the costs usually are lower than a conventional lender. You would be wise to negotiate this with your lender.
Also, note that you can have the seller pay some of the closing costs, if they are agreeable to do so. This means that you do not have to pay as much cash out of pocket.
#8 Many FHA Home Loans Available
There are hundreds of FHA-approved lenders in the US. You can get a 30 year fixed loan, an adjustable loan of three, five or seven years, and also a 15 year loan.
Not every lender offers the same types of loan, so you should try several different lenders to see who offers you the best deal.
Also, different lenders may offer slightly different rates. So it always will pay off for you to check with several lenders.
The Bottom Line
Buying a home for the first time can be both exciting and challenging: Exciting because you are finally going to have a piece of the American Dream. But it can be challenging because there are many costs associated with buying a home.
Buying a home for the first time especially can be difficult because you do not have any equity currently that you are bringing to the table.
But millions of home buyers across America every year are surprised to learn just how easy it is to buy a home with an FHA mortgage. Down payments are very reasonable, as are the interest rates. All in all, getting an FHA loan could be the best decision you make when you get your first home.