FIRST TIME BUYER? THINK FHA



By far, more first time home buyers choose the FHA mortgage loan to buy and finance a home. There are other loan types out there, but the FHA program is the favorite choice for those buying a first home. Why is that? There are few reasons and if you’re thinking of buying your first home, here’s why FHA loans are a good choice for you.

Low Down Payment- FHA loans require a down payment around 3.5%. While there are two other government-backed loans, VA and USDA, the FHA loan can be used almost anywhere and by anyone. VA loans are reserved for veterans and certain military personnel and USDA mortgages must be located in an approved area with income restrictions on the borrowers. FHA loans have no such restrictions.

Competitive Interest Rates- Conventional loans also offer lower down payment loans that don’t require a 20% down payment but when a borrower purchases a home with 5.0% down, the interest rate can be higher. FHA loans don’t change their rates just because of a down payment of 3.5%.

Easier Qualifying- First time homebuyers who choose an FHA loan will find the lower down payment option on an FHA loan is easier to qualify for compared to say a 5.0% down conventional loan. This means lower minimum credit score requirements, too.

Relaxed Credit Guidelines- FHA lenders allow for credit scores to be as low as 580 and some even lower. With a conventional loan with 5.0% down, the credit score requirements might be as high as 620 or greater. For those with a recent bankruptcy, FHA loans have a shorter waiting period before someone is eligible for an FHA loan compared to a conventional. If someone doesn’t have a credit score, lenders can still approve an FHA loan using other methods.

Gifts- FHA loans are also a better choice when the borrowers need some financial help from a relative to help with closing costs or a down payment. With a conventional mortgage, the buyers must have a minimum of 5.0% of the sales price with their own funds, even when there is financial gift to help out with closing costs or a down payment. With an FHA loan, the entire down payment can be in the form of a gift from a family member or a qualified non-profit organization as long as the buyers have at least $500 in the transaction.

Non-Occupying Co-borrowers- Are the monthly payments just out of reach for an FHA loan? Perhaps the credit scores aren’t where they should be and the borrowers need to strengthen their loan application? FHA loans allow for the non-occupying co-borrowers to contribute their monthly income to help qualify and strengthen a loan file, even if the buyers are temporarily unemployed. Conventional loans allow for a non-occupying co-borrower to be on the loan but the buyers must still qualify on their own.
FHA loans have been around since 1934 and while the program wasn’t introduced to help first time home buyers, the various features of the program make it a hit with a first timer. There’s no first time requirement, but if a low down payment and easier qualifying are the goals, the FHA mortgage is a perfect fit.

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