There are many different options for home buyers when it comes to choosing a mortgage lender. One of the most popular choices for many home buyers—particularly those that may not qualify for a conventional loan through a lender—is an FHA home loan.
All FHA loans are insured by the Federal Housing Administration. What this means to a lender is that if the borrower should default during the loan period, the FHA will repay the bank. This takes the risk out of making the loan for the lender, allowing them to accept low down payments and other qualifications that conventional loans could not accept.
Low Down Payment
With the lender not concerned about a default on FHA home loans, the requirement for the initial down payment on the home is much less. The amount of the down payment is directly related to the credit score of the borrower.
As long as the lender approves of the borrower’s credit score (generally this needs to be at least 580), the borrower can pay as little as 3.5% down. Some lenders will require higher credit scores to qualify even for an FHA loan.
Lower Mortgage Rates
With an FHA loan, buyers with credit scores in the high 600s will find they are on par with the rates for conventional loans available to buyers with credit scores in the low to mid-seven hundreds.
All else equal, lower mortgage rates will mean you end up paying less interest.
With the choice of an FHA loan, it is also possible for the seller to cover the cost of up to six percent of the closing. This savings means that the buyer has lower costs with the purchase of the home.
Finally, while selling the home may not be an immediate consideration, the choice of FHA home loans allows for the mortgage to go with the home. In other words, the buyer can assume the loan without having to go through the mortgage application process. The rate will also stay at the same level for the original loan.
At Guaranteed Rate, we can work with clients to obtain the best rates for FHA home loans. To learn more, see us online at website
