For first time home buyers that want to know about the financing options available to them, there is a lot of factors to consider before choosing the program that best suits a particular situation. One of the most used mortgage programs, especially for first-time homebuyers is the FHA mortgage program.
The FHA home loan program is the mortgage program for homebuyers provided by the Federal Housing Administration. The mortgage comes with different benefits and advantages, especially for first-time home buyers, which has made it popular among this category of people.
Below are some of the advantages of an FHA mortgage for first-time homebuyers.
1. Low Credit Scores:
One of the advantages of an FHA mortgage is less stringent credit standards compared to the conventional loan programs. Unlike conventional loan programs where lenders require the borrower to have a relatively high credit score, borrowers can qualify for an FHA mortgage with a credit score as low as 580. It is, however, worth noting that while the Federal Housing Administration will insure loans with a credit score as low as 580; not all lenders will agree to underwrite and subsequently approve a loan applied for by a borrower with a credit score of 580, more so, under 580. Banks that service such loans have been discovered to have additional underwriting criteria called an “overlay.”
2. No need to pay off collection accounts:
Another advantage of the FHA mortgage is that it does not require the full payment of any medical collection accounts for borrowers to qualify. While it is usually advised for borrowers to keep their credit health up to date and ensure that past collection accounts are paid in full, this is not part of the primary requirements to qualify for the loan.
3. Low down payment:
First-time homebuyers and other people opting for an FHA mortgage loans also enjoy from having a significantly small down payment required. It is as little as 3.5% of the sales price of the property, as opposed to conventional mortgages that require higher down payments. This is in addition to the fact that it is not compulsory for the down payment to come directly from the intending homebuyer, as it can come from any other source, such as gifts from one or several family members and friends. The down payment can also originate from a state or county agency, especially those that are offering assistance to first-time homebuyers in the form of monetary grants. It is, therefore advised, that you check your state and county for the availability of such grants.
Borrowers with a mid-FICO score lower than 580 can still qualify for an FHA-insured loan. FHA extends a loan to borrowers with a FICO score as low as 500. There is, however, a trade-off with the down payment requirement. They will be required to come up with at least 10% down payment with a score as low as a 500 mid-FICO.
4. Employment status:
The fourth benefit of an FHA mortgage is that the intending homebuyer meets the minimum work qualifications if he or she can demonstrate a history of one year of consistent employment. This job requirement for an FHA mortgage is an advantage when compared to other loan programs that have a two-year minimum work record to meet underwriting qualifications.
5. No Reserve Assets:
Another benefit that borrowers, especially first-time homebuyers get to enjoy is that they do not have to show reserve assets that can cover two months of mortgage payments in an account, as opposed to what is obtainable with conventional mortgages.
One other benefit an FHA borrower gets is the ability to get as much as 6% of the sales value of the property with closing asset help. This benefit is almost non-existent with conventional mortgage loans.
Just like borrowers can get down payment gifts from family members or friends, a borrower of an FHA mortgage loan can also get a gift for closing cost money. The case is similar to what is obtainable with down payments as borrowers can receive the gifts from family members, loved ones, and county or state agency that offer assistance to first-time homebuyers.
The minimum property standard requirement in the case of FHA mortgage is another advantage of FHA mortgage loans. Appraisers approved by the Federal Housing Administration will state the conditions that fall short of the safety requirements for your prospective home to be approved for a loan from the FHA. It is worth noting that these appraisers are not to be mistaken for home inspectors that help in the determination of the quality of the structure and systems of the home.
It is everyone’s dream to get a home, and first-time homebuyers particularly cherish this feeling. Thankfully, programs like FHA mortgage loans help people make their dream of having a place they can call home come true by providing them with relatively affordable loans.
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