You should have already heard of FHA loan if you are thinking of buying a house. This type of loan is popular because they make it easy for almost anybody to buy a home. But before you take out an FHA loan, it's essential to get know what exactly an FHA loan is and who are they suitable for?
What Is FHA Loan?
FHA loan is a financial mortgage insured by the U.S Federal Housing Administration through any FHA-approved lender in the United States. In 1934, congress established the FHA to help low-income borrowers obtain a loan that they would otherwise have trouble qualifying for. The FHA serves as insurance on the loan itself. However, the lender bears less risk in case a borrower defaults because the FHA will reimburse the lender the due amount.
Why Do People Like FHA loan?
FHA loan is famous in the U.S because a debtor can qualify for this loan with a low down payment of 3.5%. This particular type of loan is much lower than most traditional mortgages that require between 10% to 20%, or more. Another common feature of FHA loan is the low credit score requirements. You only need a credit score of at least 580 to qualify. You can still get an FHA loan if your credit score drops and is between 500 and 579 given you can make a 10% down payment.
FHA loan also makes it possible to qualify if you have other types of debts. FHA loans can be offered to consumers with a debt-to-income ratio of up to 43%. With FHA loan, you can make down payment through a financial gift from a family member, savings, or a grant for down-payment assistance.
Benefits Of FHA Loan
There are many reasons why the FHA loan is attractive to homebuyers. Below are a few of them.
- FHA loan has lower closing costs
- FHA loan is easy to qualify for
- FHA home loan has lower interest rates
- FHA Loan is suitable for first-time homebuyers
- Gift money can be used for a down payment
- FHA loan can help you make home upgrades and repairs
- FHA-approved lenders can offer different loan terms
Is An FHA Loan Right For You?
FHA loan is a fantastic option for homebuyers without the savings or credit history to qualify for a traditional mortgage. Lowe income earner and first-time homebuyers can benefit from this loan. However, an FHA loan is not worth the monthly MIP expense if you are a veteran buying a home, or buying a rural property with the savings and credit score that qualify for a traditional mortgage. In this case, the traditional route is a better option.
FHA loan certainly offers several benefits to borrowers, especially those with a less-than-perfect credit score who aren't able to come up with the minimum down payment amount required for traditional loans. If you live in New Jersey and feel FHA loan can help you get the house of your dreams, then contact HQM Loans today.