More than 40 million Americans have used an FHA loan to purchase or refinance their homes since these loans were first introduced nearly 80 years ago, according to the U.S. Department of Housing and Urban Development. And this popularity remains strong today. But what exactly is it about an FHA loan that makes it so attractive? Designed and insured by the Federal Housing Administration of the U.S. government, FHA loans typically require a lower down payment and accept lower credit scores, making it easier to be approved for a mortgage. So how do you know if an FHA loan is right for you? There are several points to consider.
Lower Down Payment
FHA loans require only a 3.5% down payment for the purchase of a home compared to as much as 20% for other types of home loans. This means you can spend less time saving for a down payment and more time living—and building equity in your new home.
Just how little do you need for your down payment? With a $200,000 mortgage, you would only need to put down $7,000. That’s it!
Low Credit Score
Simply put, it can sometimes be difficult to keep your credit in that “excellent” or even “good” range. And as you know, credit is one the most important factors for getting a mortgage. However, FHA loans are available to help people with less than perfect credit become homeowners. Even credit scores as low as 580 are acceptable to obtain an FHA loan.
FHA loans have been available for many years in order to help consumers, particularly first time homebuyers, attain the dream of homeownership. When comparing different types of mortgage products for a home purchase or refinance, an FHA loan should always be considered as an option.
Less Equity Required for a Refinance
One of the biggest reasons new homeowners refinance with an FHA loan is that, up to 97.75% of the home’s value can be refinanced, eliminating the need to wait until a large amount of equity is gained. What’s more, refinancing to a lower interest rate FHA loan may result in a lower monthly mortgage payment and give you some financial flexibility with your income.
FHA Streamline Refinance
Refinancing an existing FHA mortgage to another FHA mortgage allows you to make use of the FHA streamline product. This is a transaction that requires less documentation, lower credit requirements and oftentimes no appraisal. Keep in mind, in order to qualify for a streamline refinance, the refinance must lower your interest payments and your current loan must be in good standing.
Think an FHA loan may be right for you?