The Advantages of FHA Mortgages

Many first time homebuyers have a difficult time coming up with the large down payment necessary for a conventional mortgage, or lack the strong credit history required to secure financing. Luckily, a mortgage insured by the Federal Housing Authority (FHA) is a great alternative, as they do not have the same strict requirements.

The basic premise is: loans are sourced through private lenders, and the government then insures those loans so there is less risk to the lender, allowing them to approve financing for those with less-than-perfect credit or smaller down payments.

Though there are minimum requirements for an FHA mortgage, they offer some significant advantages for many people.

Lower Credit Score and Down Payment

Because an FHA loan is backed by the government, credit score and down payment requirements are lower than those of conventional loans. Buyers require a minimum of a 580 credit score and a down payment of 3.5% to qualify.

Closing Costs

For buyers who may be able to put together a down payment but struggle to put enough away to cover closing costs, an FHA loan is especially beneficial, as they allow sellers to pay up to 6% of the loan amount to cover the buyer’s closing costs – whereas a conventional loan only allows up to 3% when going with a minimum down payment (Conventional loans also allow a 6% seller contribution when putting at least 10% down).

 Assumability

FHA loans are assumable, which means that if you sell your home in the future, the new buyer can take advantage of your low rate as long as they qualify for the loan.  In a rising interest rate environment like we currently have, this is a valuable selling point.  Imagine a situation where prevailing rates are 9% or 10% (or higher) years from now, but you can offer a potential buyer an attractive rate less than half of that.  This could save them hundreds of dollars every month on their payment!

If you’re in the process of saving to purchase your first home, an FHA mortgage may be a great option if you’re looking for a smaller down payment, flexible seller contributions, assumability, and  competitive interest rates.

For more information about FHA loans, or to explore your other mortgage options, give the experts at Butler Mortgage a call today at 407-931-3800.