Many Americans dream of buying a home. Financing is helping those Americans realize that dream, maybe even earlier than they thought possible
There are several different loan options available. One option is the FHA loan, which is government-backed and comes with a ton of advantages.
What's in this article?
If you are unsure if an FHA loan is right for you, allow us to give you seven reasons as to why you might want to reconsider this option.
1: Lower Credit Score Requirements
Each loan carries certain requirements when it comes to a credit score.
Normally, you will need a score about 620 in order to secure a conventional loan. However, when it comes to an FHA loan, the rules are different.
In order to secure an FHA loan, you will only need a credit score of 580 or above. This gives you a little leeway if you are worried your credit score might not be high enough, or if you are trying to raise your score a little at a time.
Why waste time and potentially lose out on the home you want trying to raise your score? Take an FHA loan instead.
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2: Higher Loan Limits
The FHA raised loan limits in 2022, which means you can expand your financing capabilities.
Loan limits vary by state and region. Low-cost home buyers in Florida, Iowa, and other states can typically get an FHA loan of up to $420,680.
These loan limits rise in counties that have a higher demographic of wealthy people. In fact, you can get up to $970,800 for your FHA loan in some areas.
You can increase your loan limit by purchasing a multi-family property. The 2022 FHA Loan limits are the following:
- $538,650 for a duplex
- $651,050 for a triplex
- $809,150 for a quadplex
These limits apply to low-cost areas. You’ll find higher limits for medium-cost and high-cost areas.
3: A Lower Down Payment
A down payment represents the final obstacle before home ownership. Families can plan for the mortgage in their budget, but they often forget about the down payment.
Saving for a down payment can delay your home purchase, while issues with your down payment can ruin your purchase altogether.
A lower down payment makes it easier to buy your first home, and an FHA lender can help you lower that down payment through an FHA loan which requires only 3.5% upfront.
4: Affordable Mortgage Insurance
If you pay less than 20% on your FHA loan, you will need private mortgage insurance. Lenders take a risk when financing most of the purchase. That’s why they make homeowners pay the PMI.
You will need mortgage insurance for an FHA loan. However, these loans come with more affordable mortgage insurance.
An FHA loan helps you save money on mortgage insurance. The only downside is how long you pay for.
If you put down 10% or more, you’ll pay mortgage insurance for 11 years. If you put down less than 10%, you pay mortgage insurance for the loan’s lifetime. You can get around this problem by refinancing to a conventional loan in the future.
5: More Leeway with Your Debt-to-Income Ratio
Your Debt-to-Income (DTI) ratio measures your monthly debt payments and earnings. You add up your monthly bills and divide them by monthly gross income.
A lower debt-to-income ratio is less risky for the lender, as a low ratio indicates you can comfortably pay off existing debts.
FHA loans give you more leeway, because you can get an FHA loan with a debt-to-income ratio of 50% or below.
Some conventional loans also allow for a 50% debt-to-income ratio. However, these occurrences are rare. Most people will need a debt-to-income ratio of 43% or lower to get a conventional loan.
The extra leeway of FHA loans makes them an attractive choice for home buyers on the edge.
6: Low Interest Rates
An FHA lender carries minimal risk since the government insures FHA loans. Because of that, FHA loans come with low interest rates.
Unless you have a strong credit score, you’ll likely obtain a lower rate on an FHA loan than a conventional loan.
You can get a 4.462% interest rate in Florida under the following parameters:
- Fixed 30-year FHA loan
- A credit score between 580-599
- 5% down payment on a $300k loan
Interest rates vary by state, loan terms, credit score, and down payment. Using the same parameters for Florida, you get the following interest rates:
- 4.826% in Minnesota
- 4.472% in Illinois
- 4.023% in Iowa
- 4.367% in Wisconsin
- 4.364% in Tennessee
Raising your down payment will have a minimal impact on your interest rate. The best way to lower your rate is to increase your credit score and loan amount.
7: Quicker Access to a Home
The main benefit of FHA loans is that you become a homeowner sooner. It is easier to qualify for an FHA loan than a conventional loan.
You can purchase a home with a lower down payment and credit score, and the mortgage insurance is relatively affordable compared to PMI.
Buying a home sooner gives you access to more appreciation. Home prices surged in 2021, and inflation trends can further drive up house prices.
You can benefit from the potential upside. You also won’t get hit with regret as you watch home prices rise.
Many millionaires accumulate their wealth through stocks and real estate. An FHA loan helps you enter the real estate market.
Quicker access to a home also provides personal closure. You can get established in your community to get to know your neighbors. Stopping your house searching will save plenty of time.
Ready to Buy a Home with an FHA Loan?
If you are ready to buy a home, an FHA loan can help. You’ll also need to approach home ownership with the right plan.
We’ve got loans available for various home buyers:
- First-time home buyers
- Upsizes and downsizes
- Vacation homes
- Investment properties
We can help finance your home. Apply for a loan today and see if you qualify.