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There is a plethora of home mortgages being underwritten by Fannie Mae and Freddie Mac – and the good news is that for those who avail those loans, there are many advantages. So much so, that buyers who otherwise might have chosen to go with a cash transaction or a conventional loan may very well choose an FHA one. Here are ten amazing reasons why FHA loans are a very smart choice for now and later – for you and those around you.
NUMBER TEN
Self-Employed Buyers May Qualify
Traditionally people who are self-employed have a hard time obtaining financing because of the strict adherence to “two years regular employment” guideline that underwriters follow. As long as the applicant can provide adequate documentation that demonstrates their consistent ability to earn, the previous two years of tax returns to corroborate that information and a current profit/loss statement, the underwriter will most likely approve.NUMBER NINE
No More Mortgage Insurance Payments After Five Years
For homebuyers opting to purchase HomePath Properties, there is HomePath financing and that does not always require a mortgage insurance premium. Any homeowner will share that one of the biggest chunks of their payment after the principal and interest is the PMI. A very good advantage for FHA loans is that in five years if the balance of the loan is less than 80% of the original sale price, the mortgage insurance premium can be released. This is ideal for families currently struggling in this economy but hope to bounce back soon and would be able to manage higher payments a bit down the line and can catch up on the loan amount due to bring it down to less than 80%.
NUMBER EIGHT
The Ability to Accept Gift Monies Toward the Home
Conventional loans do not have the provision of allowing gift contributions toward the purchase of a home. With an FHA, as long as it is not coming from a person or entity with a vested financial interest in the selling of the property, you can accept a gift contribution. This could come from family, friends, your employer, a labor union – even a charity. Many couples are now starting up bridal registries to help them obtain a new home with the help of cash gifts for this purpose.
NUMBER SEVEN
Financing for Renovations Built Into the Loan
Through a unique provision called the 203K loan, FHA borrowers are able to roll the costs of all approved renovations on the home being purchased or refinanced. There are some guidelines to follow, such as making sure a qualified professional General Contractor is hired to do the work. Also, loan officers will likely survey the property before and after, through an inspection. But the benefit of being able to move in to a home that you can renovate to make perfect is available.
NUMBER SIX
Six Months of Mortgage Payments Rolled Into a 203K Loan
A top concern of people considering renovating a property as part of their purchase is where they will live during construction. The 203k loan accommodates living expense for the duration of renovations; up to six months of mortgage payments can be rolled in to the loan. When you factor in a half-year of mortgage payments being financed into the mortgage, this gives an opportunity many people cannot afford to lose because by the end of the construction period, their home will be worth more AND they will have been able to afford the mortgage payments during that time.
NUMBER FIVE
Broader Qualifying Ratios Allow Leeway For Borderline Borrowers
Conventional loans have strict guidelines as to the income to debt ratio. Given the economic downturn currently being experienced, many prospective homebuyers are stuck in a rut because of having one or two credit cards plus a car payment. With FHA loans, there is lenience in this aspect that allows homebuyers to get into homes without having to pay off a few of those debts first.
NUMBER FOUR
Credit Score Limitations Are Less Strict
FHA is more tolerant of credit challenges than conventional loans and at a time when many Americans are struggling financially, the excellent credit scores required for super low interest rates or even application approvals are next to impossible. Most FHA loans are approved for people with credit down to 640, the typical minimum FICO score needed in most conventional banks – and a few lenders entertain scores lower than 600 with extenuating circumstances.
NUMBER THREE
As Much As 6% Seller Contribution Toward Closing Costs Allowed
These days many buyers are cashing in on the soft market by engaging in negotiations that end up in sizable seller concessions. With an FHA loan, sellers can contribute as much as six percent toward the closing costs of the transaction – though the norm these days averages around 3 to 3.5%. This is conveniently rolled in to the transaction, allowing the buyer to enjoy additional cash flow and focus on other aspects of the move.
NUMBER TWO
Loans Are Assumable –Locked-In Interest Rates Pass On
With the market as hard as it has been for sellers the past several years, any feature that provides an advantage to the seller is paramount. Assumable loans mean that when the buyer goes to sell the home the original interest rate will be passed on. The new buyer will simply assume payments on the loan. At a time when we know the interest rates are at an all-time low and that they will go back up again, this is a huge benefit.NUMBER ONE
A Down Payment Almost Six Times Less Than Conventional
The number one reason to obtain financing through an FHA loan is that the down payment requirement is only 3.5%. Many prospective homebuyers have no idea that the minimum necessary down payment is not 20% and that they can still qualify for a home even if they don’t have that much dispensable cash available. The difference adds up to thousands more dollars and the difference between being able to own a home or not.
