FHA loans have come a long way since their inception when they were known as a first-time homebuyer’s loan. Today, they are a loan program for anyone looking for flexible guidelines and low down payment requirements.
If you’ve thought about FHA financing, check out the top six benefits you’ll enjoy.
Flexible Underwriting Guidelines
FHA loans have the lowest credit score requirements out of any loan program today. Borrowers can secure a loan with a credit score as low as 580 and just 3.5% down. If you have a credit score between 500 – 579, some lenders may even allow it with a 10% down payment.
You can Use Gift Funds for your Down Payment
Many loan programs allow borrowers to use gift funds, but the FHA allows you to accept 100% of your down payment as a gift. You need a 620 credit score to use this benefit, so it’s a good idea to work on your credit before applying if you need down payment assistance.
If you have a lower credit score (500 -579), you can accept 7.5% of the purchase price as gift funds, but 3.5% must be from your funds.
FHA Loans Have Competitive Interest Rates
FHA loans always have competitive interest rates, even when rates aren’t as low as they are today. Many FHA borrowers secure an interest rate that’s equal to or even less than conventional loan rates.
You can get Help with Closing Costs
Not only do FHA loans allow you to get down payment assistance, but sellers can help with closing costs too. Sellers may contribute up to 6% of the loan amount. For example, if you borrow $200,000, the seller may contribute up to $12,000 in closing costs. This lowers the amount you need for closing.
FHA Loans Allow Higher Debt-to-Income Ratios
Lenders must make sure you can afford the loan before they approve it. Your debt-to-income ratio provides this information. Your DTI is a comparison of your monthly debts to your income before taxes.
FHA loans allow up to a 43% debt ratio and sometimes even higher if you have great credit or a higher down payment to offset the higher DTI.
You May get a Loan with no Credit Score
Even borrowers that don’t have a credit score yet may secure FHA financing. The FHA does this by looking at alternative credit sources. Any bill you pay regularly, such as your utility bills, insurance bill, or cellphone bill may count. Lenders typically need proof of 12 months of payments on three trade lines to use it.
FHA loans offer many benefits, enabling many people who thought they wouldn’t afford a loan to get one. The flexible underwriting guidelines, low interest rates, and closing cost assistance they allow make it much easier to secure home financing.
If you’d like to know more about the benefits of FHA loans, call me today. We’ll discuss your options and see how your qualifications stack up to the FHA loan requirements.
