One question about loans people often hear is this: are FHA loans exclusively for first-time homebuyers?
To answer in immediacy: no. Loans insured by the Federal Housing Administration are not only for first-time homebuyers. Borrowers who meet the standard criteria for this loan program may apply. And while this isn’t given just to first-timers, it is one of most sought-after mortgage financing routes for plenty of people, especially first-time homebuyers. This blog post will aim to answer precisely why it’s so appealing to hundreds of aspiring homeowners.
What is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA) acting under the authority of the Housing and Urban Development, commonly known as HUD. This government-guaranteed loan program is incredibly alluring among many buyers. Studies and surveys of many kinds have proven time and again that most of those who choose the FHA are indeed first-timers—specifically more than 80%.
This loan program isn’t solely for first time buyers. Even those repeat-buyers can enjoy an FHA mortgage, just as long as the property they’re purchasing will be their primary residence.
What makes an FHA loan different from conventional loans is its ability to take in loan applicants with low credit scores. Intended for low-to-middle income earners, the FHA is the number one go-to choice for people who don’t have that much cash just yet. Interestingly, the FHA does not extend the home loan themselves. Approved mortgage companies, brokers, and lending companies still accommodate applicants. The only difference is that this government home loan program guarantees the loans handed by these lenders. The reason for this is so that these commercial lending firms aren’t exposed to a great deal of danger if a borrower defaults on the loan.
FHA loan calculator
A favorite tool found everywhere on the internet, an FHA loan calculator helps give appoint homeowners a rough estimate of how much a property would cost under the FHA. Because the rate of how much one pays on a regular basis is dependent on one’s credit score and down payment, prices vary.
To start, the FHA allows qualified buyers to put in only 3.5% as a down. What qualifies a borrower, aside from necessary documents, of course, is his or her credit score. Loanees whose credit score is 500 to 579 may still qualify for an FHA loan with a 10% down payment. Meanwhile, applicants whose FICO score are at least 580 can buy a house with only a 3.5% initial payment as mentioned earlier.
FHA loan limits
Despite this loan program being referred to as lenient, its limits are still considerably generous. As with every loan program, these loan limits depend on where the home is being built and or purchased.
FHA loan vs. conventional
The reason for this loan program being popular is, as mentioned its leniency compared to commercial mortgages. For instance, one can pass his or her loan to another party if the current borrower can no longer keep his end of the loan. Aside from the very minimum down payment, this has got to be a strong determiner and a compelling reason for people choosing to apply for an FHA loan instead of a conventional mortgage. Borrowers are also allowed to use gift funds during closing, too!
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