FHA Loans - Benefits
- FHA Loans (Federal Housing Authority Loans) are ideal for many first-time homebuyers who have minimal cash saved for a down payment and who may have less than an ideal credit score.
- FHA loans require a 3.5% down payment with a credit score of 580 or more which is far lower than the 620 score required by most conventional lenders. Employers, close friends, and family members can contribute gift money towards your FHA down payment. Most conventional loan programs don’t allow gifts or restrict who can contribute gift funds for a down payment.
- The lowest credit score for an FHA loan is 500 to 579 with a 10% percent down payment. Applicants with credit problems, including a bankruptcy or foreclosure in their recent financial history, may still qualify for an FHA loan when they would almost certainly be turned down for a conventional loan.
- Your debt-to-income (DTI) ratio is calculated by dividing your total monthly debt payments by your gross monthly income. FHA loans allow for a DTI ratio up to 43%, although some FHA lenders will accept a higher DTI under certain conditions. Most conventional lenders are far stricter.
- FHA loans can be obtained for several housing types: a single-family homes, multifamily homes with up to four units, condominiums, and manufactured homes placed on permanent foundations. Borrowers can use an FHA loan to buy a multifamily home (two-to-four units) with a 3.5% down payment and qualify with rent from the other units as long as they live in the property for one year.
- FHA loans are assumable by subsequent buyers unlike nearly all conventional loans.
- FHA loans are very easy to refinance if the home equity supports a new loan.