Why You Want an FHA Loan In 2015

Been shopping for a mortgage? Ask anyone from your social circle and at least 2 out of every 3 people will be recommending you to go for FHA loans. They’d be stressing that despite how a couple of rules have been tightened following the home mortgage crisis, it’s still the best means to finance your home.

What is an FHA Loan?

Before we begin with what you can have with an FHA loan, it’s important you understand this one crucial fact. Federal Housing Administration is a division of HUD. It’s not the body making home loans. All it does is provide a guarantee on behalf of the borrowers so the FHA-approved lenders know they won’t be losing money and can still be game with competitive rates.

One of the well-kept secrets in 2015 is not everyone can qualify for conventional loans. Typically you may be limited to having only one FHA loan at any instance. But there are exceptions. That said here are the advantages that would make you pro-FHA in 2015.

Low Credit Score

Where conventional loans wouldn’t approve of an applicant unless they’d had the perfect figure gleaming across their report, FHA lets borrowers even with a theoretical score of 580 be ready for purchase.

Of course, you’d still need to see what different lenders are offering for most of them have their own individual ‘overlays’ seeing how these default more. So, you’d see that some consider a minimum below 620 to be subprime whereas others still allow for those between 500 and 580 if they’re not failing on other standards.

Smaller Down Payment

A majority of these mortgages ask for a 3.5% down payment, like $3,500 for every $10,000. On an average, most loans have it at 5%. If the score is less than 580, it’d go as much as 10%. Still, that’s a lot lower than the 20% of conventional loans.

What’s more, the down payment can be a gift from friend, relative, or organization, which technically makes you put zero down. Non-FHA loans don’t give you that sort of leniency, insisting that the down payment be made from your savings or any other personal asset.

Greater Debt

Not that it’s a good thing, but you may be able to increase the traditional income-to-debt ratio from 45% to 47%. You may even enjoy increasing it further given there’s job stability, excellent credit, enough money in the bank following closing to support your case.

Buyers, beware though; your credit score affects the limit and as such borrowers with a 580 score aren’t supposed to be spending more than 43% of their pre-tax income on debts. Also, just because it’s allowed doesn’t mean you’ll also be approved with a higher debt ratio.

Assumable Loans

This is another reason why you’d want an FHA loan in 2015: instead of applying for and taking out a new mortgage, buyers are better off taking over the existing loan of sellers. The mortgage rate at that time continues to be. For sellers, having an assumable loan thus gives them an edge over others in neighborhood. For buyers, it’d mean meeting not only all the standard mortgage prerequisites but also making a larger down payment based on the seller’s equity.

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