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Top 6 Reasons FHA Home Loan Mortgages Are So Popular

05/03/2010
Earlier in the decade, demand for FHA loans declined as sub-prime and no-interest mortgages became the preferred loan options. But those riskier loans triggered a sub-prime crisis and resulting wave of home foreclosures, which then triggered a much-needed tightening of lending criteria. All of this has led to renewed interest in FHA loans.

Many low- to middle-income buyers looking to purchase a home consider the FHA loan a viable option, which is helping fuel increased demand. Also fueling the loan's popularity is the federal homebuyer tax credit bridge loan which can only be used with FHA loans.

Understanding FHA loans
FHA loans can be used to buy a new home or refinance a principal residence. As a division of the Department of Housing and Urban Development the FHA, or Federal Housing Authority, insures the loan, but does not fund it. Instead, these loans are funded by banks, savings and loan associations, mortgage companies or other types of lending institutions.

FHA home loans require borrowers to pay mortgage insurance similar to private mortgage insurance charged on some conventional loans. FHA mortgage insurance is paid by the borrower up-front; the amount of which is equal to 1.5 percent of the purchase price. A smaller amount of mortgage insurance is also paid each month.
Other FHA loan benefits

6. Down payments are lower
Qualifying borrowers can take advantage of the FHA's 3.5% down payment benefit. Plus, HUD offers several down payment assistance programs and grants that enable some borrowers to buy their homes with no money down.

5. Even bad credit borrowers may qualify
Some borrowers with bad credit who would not otherwise qualify for a conventional loan often qualify for competitive rate government-backed FHA loans.

4. Geared towards first-time buyers
Young, just starting a career and possibly saddled with student loan debt is the typical profile of a first-time buyer. FHA loans with their less stringent credit and qualifying guidelines, higher debt-to-income ratios, and manageable down payment requirements are perfectly suited to this type of buyer.

3. Shorter waiting periods for bankruptcies and foreclosures
Borrowers with a previous home loan foreclosures need only wait 3 years after foreclosure and 2 years after a bankruptcy to apply for an FHA loan. Conventional loans require longer waiting periods.

2. Pay early without penalty
There are never any penalties associated with paying the loan off early, which makes refinancing so much easier.

1. More advantageous debt-to-income ratio
FHA loans allow a maximum debt-to-income ratio of 41%, which is higher than what's allowed when applying for a conventional loan.

These are the top six reason why FHA Home loans are gaining popularity in today's housing market. If you feel you can take advantage of these points we suggest looking into an FHA Home Loan In 2010.

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