Recently FHA mortgages changed the guidelines on when the mortgage insurance(MI) goes away. Now if you put down the normal FHA down payment of 3.5% the monthly mortgage insurance never goes away. Vs in the past it did. This has caused FHA loans to get a bad rap. Yes this is not good news, but this does not mean FHA loans are bad loans all around. There are many examples where if there was not a FHA loan option, many home buyers could not buy a home. Here are 10 reasons to still love the FHA loan:
1. Credit Scores down to 580- Unlike conventional loans that require a higher credit score(depending on down payment, etc they can require a 680+). I can do FHA loans down to a score of 580.
2. Seller paid closing costs- FHA loans allows the seller to pay 6%(of home sales price) in closing costs. This can cover the closing costs and escrow account(prepaids), greatly helping to reduce the money needed for closing. Conventional loans with less than a 10% down payment have a max of 3% that the seller can pay in closing costs
3. Deferred Student Loans- If the buyer’s student loans are deferred for 12mths or longer, the payments will not be counted in their debt to income ratio. Conventional loans require the payments to be counted even if they are deferred. This could help someone get approved for a FHA loans when they may not be able to afford the home under a conventional loan.
4. Lower Interest Rate- In most examples the Interest rate on a FHA loan is lower than a conventional loan
5. Higher Debt to Income Ratios- Conventional loans with a 5% down payment require a debt to income ratio of 45% vs FHA can go to 50%. Allowing them to buy more home.
6. Parent’s Co Signing- If a parent cosigns for the home buyer, FHA still allows a down payment of 3.5% vs Conventional requires a 10% down payment in this example.
7. Down Payment can be a Gift- On FHA loans the whole down payment can be a gift from immediate family. Conventional loans require that at least 5% of the down payment is the buyer’s, unless they are putting down 20% then that can all be a gift.
8. Shorter wait time after a Foreclosure- If the client has had a past foreclosure, they only need to wait 3 years to get a FHA loan. Conventional loans require 4 years or longer
9. Shorter wait time after a Bankruptcy- FHA loans only require that you wait 2years after a Ch 7 bankruptcy. A Conventional mortgage requires 4years.
10. Construction Loans- I actually offer a FHA construction loan with a down payment as low as 3.5%. Normal construction loans require a down payment of 10% or even more. Get more information on this program: FHA Construction Loan.
This post is not meant to sway you in deciding on getting a conventional loan vs a FHA loan. But rather go over the benefits of a FHA loan. Even thou FHA loans have recently gotten a bad rap, there are still a lot of reasons to Love FHA Loans!!
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