Benefits of an FHA Mortgage

Low mortgage rates and low real estate prices in many areas of the country may have you wondering if the time is right to buy a home. As they consider purchasing real estate many first time home buyers fear they won’t have enough money for a down payment, that their credit score will be too low, or that they will be required to pay costly mortgage insurance. Thankfully these fears can often be put to rest by examining the terms of an FHA loan.
An FHA loan is backed by the Federal Housing Administration, an agency of the federal government. This means that if the borrower defaults on the mortgage and the lender is forced to foreclose on the property, they can collect on the mortgage insurance policy with the Federal Housing Administration for any losses they incur. This lowers the risk to mortgage lenders, enabling them to offer better rates and terms to borrowers.

FHA loans are not available to everyone – there are still guidelines that must be met in order to qualify, such as a minimum credit score, a minimum down payment, and adequate income and assets. The FHA watches default rates closely to be sure that when following these guidelines those who are most likely to repay their loans are approved, and those who are likely to default are not.
The availability of FHA loans does not just benefit those borrowers who are able to purchase a home or refinance a mortgage by taking out an FHA mortgage – the presence of these loans allows more homes to be sold, strengthening the housing market and the overall economy. Even if you are not in the market for a new mortgage loan if you own a home and want the value to remain stable, or better yet to increase, it is important for other homes like yours to sell. Homes can only sell in large numbers when there is affordable home financing available to those who want to purchase them.
Some of the advantages to borrowers of an FHA loan include:
• Low down payment. An FHA loan only requires that 3.5% of the purchase price be put down. The seller is also permitted to contribute to the down payment and other closing costs. This can be negotiated as an alternative to lowering the sales price to help the buyer purchase the home.
• Lower credit score requirements. While there is still a minimum credit score required to qualify for an FHA loan, it is often lower than the minimum score for other programs. This can allow those who have had some credit issues in the past realize the dream of homeownership. Once they are paying their mortgage on time and in full every month this can also help rebuild their credit.
• Low mortgage insurance premiums. Mortgage insurance is charged by lender when financing a large about of a property’s value, generally 78-80% or more. This coverage insures the lender against losses incurred should the home go into foreclosure. With an FHA loan there is an up front charge (which can be financed into the loan amount) and annual premiums (generally paid as part of your monthly mortgage payment.) Mortgage insurance is paid for a certain number of years, or until the loan reaches a certain percentage of the home’s value, depending on the terms of the loan. These premiums are often significantly lower in an FHA loan than those of the comparable private mortgage insurance offered by for profit companies, particularly for those with credit issues.
While an FHA loan offers some excellent advantages, it is a good idea when shopping to compare the rates and terms of a few mortgage programs that might meet your needs to ensure you are getting the financing solution that is right for you.

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