Why Ask For An Fha Loan?
If we really think about it, there are many reasons you should ask for an FHA loan
. Especially if you're a first time home buyer. Let's consider some of the best.Here are 5 good reasons:
Easier to qualify for the loan
You do not need perfect credit
Very low down payment
Costs are lower
You keep your home
Ok, now we can look at these in greater detail. Then you can see why asking for an FHA loan may be your best option.
Easier to Qualify For the Loan
FHA is not the actual lender. They are a government run program that insures the lender that they will get their money if you do not pay. So they have less risk than a conventional loan. A conventional loan is normally insured up to 90% of the loan amount (by a private mortgage insurance source) where as FHA is insured up to about 97%.
So it takes less for you to qualify since the lender is guaranteed by the United States Department of Housing and Urban Development (or HUD) that there is no real risk to the lender so they will be more likely to take a chance on borrowers with less than perfect credit. This brings me to the next point.
You Do Not Need Perfect Credit
At one time, a few years ago you could get and FHA loan with no credit scores at all. This was great for borrowers who had not established credit in the conventional methods. However you could still use alternative credit like rent, cell phones, utility bills etc.
Now FHA wants you to have a credit score of at least 580-620. If you do not have a score it will be much more difficult to get a loan if at all.
So be sure you are building credit now, use a credit card but pay it off each month. If you have student loans, this will work also, just be sure to keep your payments on time. The same goes for medical bills.
You cannot have more than 2 accounts that are over 30 days late in the past 2 years.
Very Low Down Payment
So again, what ask for an FHA loan? How about the low down payment of just 3.5%? To top that off it can be a gift from your parents or a charity. Only FHA loans allow this as far as I know.
There are many ways to work at raising this money. You either save it yourself, get a gift from the parents or have a charity give it to you. I know what you're thinking, how do I get a charity to give it to me. Well, that's for another article.
Costs are Lower
FHA loans offer great interest rates. Compare them to the conventional loan to see for yourself that this is true. Compare the FHA interest rate with several lenders and you may find some that are lower.
You may find it just a little above the conventional loan. For example if the conventional loan is 6% the FHA loan may be around 6.5%.
What you need to keep in mind is that FHA loan rates have not varied much over the years. I bought my first house in 1978 and my interest rate was 7.75%
You Keep Your Home
HUD does not want your house back. They want you to stay in it until you pay it off or sell it. That's why they insure the loan to project the lender ad you. Since 1934 they have been doing this and it's a good bet they will continue to do so.
Conclusion
While FHA loans may not be for everybody, they do order many benefits. When you look at the simple qualifications, low credit requirements, easy down payment, great interest rates and the insurance to the lender it makes for a great reason to ask for an FHA loan.
by: Jeffrey S. Ragan