FHA Loans Allow a Blemished Credit History
If your credit is less than perfect, FHA might be the loan for you. You may qualify for an FHA loan even though you have had financial problems. FICO scores can be lower than those for a conventional loan.
FHA Loans Boast Competitive Rates & Terms
Bankruptcy. You can usually obtain an FHA loan a few years from the date of your bankruptcy discharge, as long as you've maintained good credit since your debts were discharged.
Foreclosure. If you keep your credit in excellent shape since a foreclosure, an FHA loan may be available to a few years from the final date of your foreclosure.
Today's terms are pretty straightforward. In fact, in many markets the rates and terms are better than those for 80% / 20% piggyback loans.
FHA Loans Demand Fewer Repairs
- There is little or no adjustment to the interest rate for an FHA loan, as the rates are NOT risk based like a conventional loan.
- Mortgage insurance is funded into the loan, meaning a premium of 1.0% is added to the loan balance instead of being paid out-of-pocket. In addition, a small portion for the mortgage insurance premium is added to the monthly payment, but it is far less than most private mortgage insurance premiums.
- As of January 1, 2009, Borrowers can finance 96.5% of the purchase price and put down 3.5 percent. In some instances, when combined with other types of loans, the down payment can be as low as 1%.
- Allowable debt ratios are higher than the debt-ratio limits imposed for conventional loans.
At one point, FHA repair demands were so excessive that sellers would discount the list price to buyers who would agree to obtain conventional loans over FHA loans. Today the FHA repair guidelines appear more reasonable.
- FHA appraisals do not take the place of a home inspection, never have. Buyers should still obtain a professional home inspection.
FHA loans are available to anybody but are used most often by first-time home buyers and low- to moderate-income buyers. However, there are no income limit qualifications.If you are a first time home buyer with little savings, or have had credit issues a FHA loan program may best meet your needs.
Facts that make the FHA Loan ideal for the average home buyer:
- Primarily designed for low to moderate income households.
- High Approval Flexibility for Credit Problems.
- No recent credit history is required to be eligible for a home loan although you will need at least one credit score that meets the requirement.
- Continuous College Transcripts acts as your job history for those new to the work force.
- You can finance these residential property types: Single Family Homes, Duplex, Townhouse, and Condo's
- Works easily with Grants and Charities that assist home buyers with Down Payment money.
- Everyone is eligible with no income restrictions.
- Interest Rates are comparable to conventional rates.
- No risk based Mortgage Insurance Premiums
- No prepayment penalties
- Sellers can pay up to 6 percent of closing costs and concessions
- Higher allowable debt-to-income ratios than for many other loans
Extra Costs to the Seller
If you are obtaining a FHA loan in order to finance your purchase, you must include that information in your offer. This is because government loans place additional financial and performance obligations on the seller.
FHA loans prohibit buyers from paying certain types of fees that are often charged by lenders, escrow companies, settlement agents, and title companies. They are called "non-allowable" fees. They still get charged anyway, but as the buyer, you are "not allowed" to pay them. The result is that the seller ends up paying them instead of you.
Most of these "non-allowable" fees come from your lender. By the time you are making an offer you should have already been pre-qualified by a loan officer, so you or your real estate agent can ask how much the lender’s non-allowable fees will be.
Since these are fees the seller would not pay on an offer with conventional financing, this information must be included in your offer. You should also realize that since the seller will be paying these additional fees, they may be a little less negotiable on the price.