FHA loans are a great option for individuals who are either purchasing a new home or refinancing their current home. Because these loans are insured by the Federal Housing Administration (FHA), borrower s have access to lower interest rates than may be available to them on other types of home loans and can feel secure knowing their loan terms will never change.
FHA loans have a low down payment requirement (3.5% of the purchase price) and they allow homeowners to finance a large percentage of their home's value, allowing them to either receive more cash back from a refinance or save money on a down payment for a purchase.
The FHA does not require high credit scores, so it is easier for individuals to qualify for this type of loan than most others.
Competitive Interest Rates, Even for Less-Than-Perfect Credit
Because these loans are insured by the FHA, they are considered by lenders to be a reasonably secure investment. The insurance reimburses lenders for any outstanding balance in the event that the borrower defaults. This makes FHA lenders more likely to offer their customers lower interest rates.
Although mortgage rates constantly fluctuate and depend upon current mortgage market conditions, they are usually low compared with other types of loans. If borrowers choose a fixed rate for their FHA mortgage, that interest rate will never change over the life of the loan.
With a fixed rate, the homeowner will always know what to expect on their monthly payments and will not have to worry about rates or their monthly payment increasing.
Homeowners who have an FHA loan can lower their interest rate any time the market improves with a streamline refinance, which requires less documentation and processing than other refinance transactions.
When borrowers refinance, they can lower both their rate and monthly payment. If rates have decreased since the original loan was taken out, even homeowners with a fixed rate can receive a lower rate with the streamline refinance. Lowering the rate on a home loan frequently results in not just long term savings, but lower monthly payments, as well.
Eligibility Requirements: Credit and Type of Ownership
To be eligible for an FHA home loan, the borrower must be financing the home that is his or her primary residence. The FHA does not require that borrowers have high credit scores, but most lenders want borrowers to have a credit score of at least 620. In addition, there can be no delinquent mortgage payment reported within the 12 months preceding the loan application.
If a potential homeowner has not built up a sufficient credit history, he or she can still qualify for an FHA loan. These applicants will be asked to provide certain types of alternate documentation in order to prove their ability to consistently make payments.
While not every financial product is right for everyone, FHA loans have many benefits that make them the ideal solution to a variety of home financing needs. Homeowners who feel they may be interested in this type of financing should speak with an FHA loan specialist to find out more about their options.
Get Low Rates With an FHA Loan
By: Victoria Belle-Miller
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