The FHA in FHA loans stands for Federal Housing Administration. An FHA loan is a mortgage insured by the FHA and is a type of real estate loan. However, you can only use this kind of loan if you live and make the home you’re planning to buy your primary residence.
There are some significant perks to using FHA loans, and those perks are the reason why you should choose this kind of loan. Let’s take a look at the advantages of choosing FHA loans:
1. It Is Less Strict in Terms of Credit Qualifications
If you’re skeptical about applying for a home loan because you have a bad credit score, take your chances in applying for FHA loans. Most lenders are less strict in providing FHA loans compared to conventional loans. You can easily qualify for it, especially if you have less than perfect credit.
Try to check your credit score. If your score is 500, then you can qualify for it. However, some lenders prefer having a score of 580, 620, or higher. Still, the score requirements are more attainable than conventional loans.
For a higher chance of approval, submit some of these compensating factors on your application to prove your creditworthiness:
Verified cash reserves
Minimal housing payment increase
Residual Income
Low debts
Substantial non-taxable income
Increased earning potential
2. It Requires Lower Down Payment
FHA loans are the perfect go-to, especially if you’re a first-time homebuyer with little budget. You don’t need to have a significant amount of money because FHA loans only require a lower down payment. While some lenders prefer a 20% down payment for you to get the best conventional rates, others can offer as low as a 3% downpayment scheme.
FHA loans are not there to make your home buying unattainable. They are there to give you down payment assistance to help you buy the home of your dreams.
3. It Has More Lenient Gift Funds
Let’s say you have relatives or friends who want to help you on your home buying journey by giving some funds with no expectation of being repaid; that is called gift funds. FHA loans have less strict rules when it comes to gift funds compared to conventional loans’ guidelines.
Conventional loans only accept funds from relatives or anyone related by blood. But in FHA loans, you can receive gifts from family, close friends, employers, unions, and even government down-payment assistance programs.
4. Some of Your Closing Costs Can Be Financed
Another perk of choosing FHA loans is that your expenses over and above the property’s price can be financed through lender credits. It will work if you pay a little higher interest. If you’ve successfully done that, the lender will give you credit to cover your closing costs.
Conclusion
FHA loans aren’t bad at all. They can give you a chance to achieve the house of your dreams even if you have less-than-stellar credit. You can save enough money for a down payment, and they can even contribute to your closing costs. These are more than enough reasons why you should opt for this kind of loan, especially if you’re a first-time homebuyer.
If you’re looking for the best mortgage lender in Colorado Springs that offers FHA loans, Total Lending Concepts is what you’re searching for! We are your hometown mortgage lender offering home loans to fit every situation, including conventional loans, VA, USDA, FHA, and more. Contact us today to get your FHA loan!
