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Top 6 Advantages of FHA Home Loan Financing

06/02/2010
Because it offers so many advantages, Federal Housing Administration (FHA) loan financing is a popular home loan program. The program has become even more popular as a result of recent problems within the housing market. Also contributing to the popularity of FHA loan financing is private lenders' tightened lending requirements that make it more difficult for many consumers to qualify for conventional loans.

Here's a look at six advantages that increase the appeal of FHA loan financing,

6. More advantageous down payment requirements
Today's conventional home loans usually require a down payment equal to 20 percent of the home's purchase price. Qualified applicants can get FHA loans with down payment requirements as low as 3.5 percent. Some HUD-foreclosed homes require only a $100 down payment (see the HUD $100 Down Payment Incentive for more information).

5. Down payment can come from other sources
Another advantage is that borrowers don't need to come up with the down payment themselves. Money for a down payment can be borrowed or given as a gift from a family member or employer and can even be obtained through a charitable organization.

4. Excellent credit isn't necessary
Borrowers can qualify for 3.5 percent FHA loan financing with a credit score as low as 580. Lower scores still qualify for FHA loans; however higher down payments are usually required. Borrowers with a previous bankruptcy or foreclosure who may be denied conventional financing will find it easier to qualify for FHA financing with a low credit score.

3. Can be used to purchase many types of property
FHA loan financing can be used to purchase single-family homes, new construction homes, condominiums, manufactured homes, and one-to-four family homes.

2. Competitive interest rates
The FHA does not determine the interest rate on FHA loans; private lenders do. That's why interest rates on FHA loans are competitive.

1 . Easier qualification
This is probably the biggest advantage of FHA loan financing. Relaxed loan qualification criteria makes it easier for college students, first time home buyers, and buyers with less than perfect credit or a flawed credit history to purchase a home. As a federal agency, the FHA does not lend money. Instead, it insures private loans. Removing much of the risk gives private lenders more incentive to negotiate more favorable qualifying terms for FHA loan applicants.
 

The bottom line is this...

By protecting private lenders, FHA loan financing offers homebuyers a chance at homeownership that they might not otherwise have.

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