5 Reasons the FHA Loan May Be Right For You

Talking about home loans can be very confusing. There are many kinds of loans to fit various types of buyers and situations. Conventional loans are always popular and a good way to go if you have great credit and a sizable down payment ready, and can get you instant equity in your new home (who wouldn’t love that?) However, for a lot of first time home buyers, a FHA (Federal Housing Commission) may be a better choice. Ultimately, it really depends on you and your demographics, finances, and preferences. It’s always a good idea to contact a trusted CPA for advice about loans, the housing market, and your individual situation. But for the sake of brevity, we’ll try to summarize the highlights of a FHA loan.

5 Reasons the FHA Loan May Be Right For You

  •  Easier to achieve requirements for income and credit score
  • Mortgage Insurance Premium could be less expensive than PMI
  • Very low down payment is acceptable
  • Gift funds are allowed by tax laws for down payment
  • Seller can pay 6% of the closing closts

The Federal Housing Administration is backed by the government, hoping to see more Americans become home owners. That means that people with modest incomes and fair to good credit may qualify for a loan (Think somewhere above the 640 range). It Is dependent on many factors, but your credit doesn’t have to be stellar to get a FHA loan.

You can pay a one time mortgage premium payment, or 1.75% of the home loan, as mortgage insurance. This can be paid upfront or factored into the loan, whichever you feel is more feasible for you.

You can pay as low as a 3.5% down payment, when other types of loans may call for ten to twenty percent. Remember, this isn’t advice about what is financially best in the long-run (only a professional that knows your specifics can help you there) but this is an option if coming up with $20,000 is not an option for you at any time that you can imagine in the future.

Gift funds are allowed as a down payment, which means that someone else could literally pay your down payment for you and it would still be legal, without factoring into your debt to income equation.

Finally, sellers are sometimes very motivated, and they are allowed by law to pay up to 6% of the purchase price as your closing cost. That can include lender fees, homeowner’s insurance, title insurance and escrow fees. It may even pay for all of the closing costs, depending on how much your home is.

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