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An FHA home loan can be very appealing to Atlanta first-time home buyers and other home buyers who may not have the strongest financial standing. You may be able to qualify for an FHA mortgage loan with a lower credit score and lower cash down payment. These are clear advantages for home buyers. However, it is important to understand there are some slight drawbacks to this loan program, as well.
To understand the pros and cons of FHA home loans, you must first understand what this type of loan is. It is a loan program backed by the United States Federal Housing Administration (FHA) and designed to help more home buyers afford the American dream of homeownership.
Borrowers can qualify for home loan eligibility, even if they have some financial challenges that might prevent them from being able to get a conventional mortgage loan. FHA loans can be used for first-time home purchases, move-up or move-down buyers and existing home loan refinancing. Generally, FHA refinancing is available to borrowers with current FHA loans if they qualify for a lower mortgage rate.
Advantages of FHA Home Loans
Let’s look at some of the key advantages of FHA home loans. We will be covering the disadvantages in a separate article to follow. There are plenty of positives with this program, which is why so many home buyers take advantage of these home loans each and every year.
Better Chance of Eligibility
Perhaps the most appealing part of FHA home loans is that they enable more people to qualify who may not otherwise be able to qualify for conventional mortgage loans. The buyer can get a loan with a credit rating as low as 580. Most other types of mortgages require FICO scores of at least 640, though the requirements can vary from loan to loan and borrower to borrower based on a variety of other factors.
Some FHA home loans can even allow the borrower to qualify with a credit score as low as 500. We’ll talk about how in the next section. You must have a debt-to-income (DTI) ratio of 50% or less to be eligible for an FHA home loan. This means that your total monthly debt payments (car loans, personal loans, credit card minimums, student loans, etc.) cannot exceed half of your monthly gross income.
Competitive Mortgage Rates
FHA home loans generally offer competitive mortgage rates. They are not quite as low as some other mortgage programs like VA loans and USDA loans. In addition, some conventional loan borrowers may be able to qualify for lower interest rates. Your mortgage rate will be based on a number of financial factors, including your credit score, down payment amount, income/employment history and DTI ratio. Though an FHA home loan may allow you to qualify with weaker financial credentials, your financial situation can and will affect your mortgage rate. You should still work to improve your finances as much as you can before applying if you want to get the lowest possible interest rate on your mortgage loan.
Lower Down Payment
Another key advantage of an FHA home loan is that you can buy a home with a minimum down payment of 3.5% if you have a credit score of 580 or higher. If you are buying a $300,000 home in Atlanta, then that means you will have to put down at least $10,500. That may still seem like a lot to some home buyers, but it is definitely advantageous when compared to 10% ($30K) or 20% ($60K) that some traditional loans will require.
It is important to note that FHA borrowers who have a FICO score under 580 will be required to have a down payment of at least 10% in order to qualify. The mortgage lender is taking more risk with a lower qualified borrower, so this is one way to protect both themselves and the home buyer from a bad loan situation.
Easy to Apply
Applying for an FHA home loan is no different than applying for a regular mortgage loan, other than the final loan will need to be approved by both the mortgage lender and the FHA. A good lender will present an FHA loan option to you if it makes sense as a feasible solution. It is a good idea to get pre-approved for your FHA loan, as well. This will help you know how much you can actually afford to buy and it will help you show the home seller that you are a serious buyer with solid financing.
These are some of the benefits of the FHA home loan program backed by the Federal Housing Administration. These mortgage loans enable many home buyers to qualify for home loans and are often the best solution for people who may not have perfect credit or enough money saved up for a large down payment.
In our next article, we will discuss the Disadvantages of an FHA Home Loan.
If you are curious about FHA home loans in the Atlanta area or want to see what loan program is best for you home buying situation, contact the Moreira Team | MortgageRight today to get started. We can show you multiple lending options and help you make the right financing decisions. To get started, take just 30 seconds and get your custom FHA rate and closing cost quote, it’s FREE!