HUD (Housing and Urban Development) operates the FHA (Federal Housing Administration), a department designed to help home buyers secure FHA loans for property purchase, rehabilitation, and/or refinancing. While lenders provide the loan capital, if the loan adheres to HUD/FHA guidelines, it receives insurance from the Federal Government to cover defaults.
Why opt for an FHA home loan in your home buying journey?
Lenders often present a choice between conventional and FHA home loans, leaving borrowers to decide based on their needs. While both are available from private and public lenders, FHA loans adhere to FHA guidelines rather than private/publicly traded insurer guidelines. Here are compelling reasons to choose an FHA loan over a conventional one:
- Credit Flexibility:
FHA loans may be more forgiving of late payments, limited credit history, or other derogatory credit items during the qualification process.
- Income Considerations:
If your work history is not steady or recent, an FHA home loan may better accommodate your situation, thanks to more lenient guidelines.
- Loan Amount and Down Payment:
FHA allows borrowers to secure a loan at 96.5% of the home’s sales price, potentially enabling you to borrow more and make a lower down payment compared to many conventional loan products.
- First-Time Buyer Programs:
If you’re utilizing down payment or closing cost assistance programs, FHA loan approval may be a prerequisite. Confirm whether the assistance or grant program requires an FHA 1st mortgage lien.
- FHA Home Inspection:
FHA mandates a property appraisal by an approved appraiser to ensure it meets FHA lending standards. While not a home inspection, the FHA appraisal may highlight more issues compared to a conventional appraisal.
- Seller Concessions:
FHA loans permit more significant seller concessions, allowing sellers to contribute up to 6% of the sales price towards the buyer’s closing costs. In contrast, conventional loans often limit this to 3% at high Loan-To-Value ratios.
Opting for an FHA loan may result in lower upfront costs for the borrower during the purchase transaction at settlement.
