advantages of FHA loanOver the years, the FHA loan has been repeatedly compared to conventional loan options, and while the FHA loan’s reputation has time and again been tainted by the cost of its mortgage insurance premiums, the program has held its own and has developed quite a following in the mortgage industry.

The thing is, homeowners are always on the lookout for a more affordable and accessible alternative. Many conforming loans may be offering lower and more competitive down payment rates these days, but most of them still require the standard credit score, which is a tad too high for many of America’s average earners.

The FHA already has one of the lowest down payments and credit score requirements of the available mortgage programs today. Throw in the fact that FHA loans are assumable, and you have a very attractive deal in front of you.

For the aspiring homeowners out there, here are a few good reasons why the FHA home loan could be the best one for you:

 

  • Lenient credit standards

 

Put side by side with all the conventional loan options out there; the FHA loan has by far the lowest down payment rate which stands at 3.5% for borrowers with a credit score of at least 580.

There may be instances, however, where the lenders will adjust their qualifying credit scores as a precautionary measure, as it has been found that people who maintain the lowest credit scores often end up defaulting on their mortgage payment. As such, interested applicants are advised to have a credit score of 620 when qualifying for the loan, which is still relatively lower than the required 680 minimum of a conventional mortgage.

 

  • Affordable down payment

 

The down payment rate of 3.5% is made even more appealing by the fact that the borrowers don’t have to come up with the full amount on their own. Family members and relatives are allowed to contribute in the deposit funds in the form of “gifts.”

Another great news is that first-time homebuyers may avail of down payment grants and assistance upon qualifying for the FHA mortgage.

 

  • Lower mortgage rates

 

The mortgage rate for FHA loans is also lower than that of conventional loans. According to a recent study, qualified FHA applicants with a FICO score of 660 are often awarded the same interest rate as traditional loan borrowers with a credit score of 740.

 

  • Closing costs

 

As for the closing costs, the FHA mortgage program allows the sellers to shoulder a percentage of the loan to cover the closing costs. For some people, this may seem like a small thing, but for many first-timers who can barely come up with the initial payment funding, this little thing is already such as big help.

Mortgage Insurance Premium

As already stated, the biggest downside of the FHA home loan programs is its insurance costs. Where most loans require one, the FHA loan demands the payment of two mortgage insurance premiums. The first one is paid upfront while the other is an annual insurance broken down into 12 monthly payments per year. Moreover, the coverage is paid for the entire life of the loan, whereas conventional loan borrowers may opt to drop their insurance payments after more than 20% of the total loan amount has been repaid.

In sum, the conventional loan is still the best option, all things considered. However, for those whose credit scores and financial situations cannot handle the demands of traditional mortgages, the FHA home loan might be the next best thing.

by jkyle