Wednesday, March 19, 2014

The Benefits of Getting an FHA Mortgage

The Federal Housing Administration, also known as FHA, does not lend money directly to home buyers to purchase a home. Instead, approved lenders issue loans that are then insured by FHA. While there are many mortgage programs available, the benefits of getting an FHA loan are numerous.

1. FHA loans accept a low down payment of 3.5% so that low to middle income consumers can attain homeownership.

2. The minimum credit score to obtain an FHA mortgage through automated underwriting is 620, well below the required score for conventional loans. Any score below 620 requires manual underwriting to determine any compensating factors that will warrant an approval.

3. The minimum debt-to-income ratio through automated underwriting for an FHA loan is 43%, well below the DTI requirement for a conventional loan. For DTI above 43%, manual underwriting and compensating factors are required.

4. FHA offers the FHA 203(k) mortgage insurance program for homes that require maintenance and repair. Both the home and the rehabilitation expenses are rolled into the loan.

5. Home buyers can use non-occupying co-borrowers in order to qualify for an FHA mortgage.

6. FHA mortgages are assumable which allows a home buyer to purchase a home from an existing FHA mortgage holder. The home buyer can assume the FHA mortgage which may carry a very low FHA interest rate.

7. FHA offers a sweat equity mortgage where the home buyer agrees to perform work on the home. The labor and costs of materials is counted towards the required down payment of the loan.

8. FHA has mortgage programs available for condominiums, co-operatives and manufactured housing.

9. FHA loans are available as fixed rate mortgages or adjustable rate mortgages.

10. The FHA streamline refinance program allows existing FHA mortgage holders to move to a better mortgage without the need of documentation, a credit history or an appraisal. The homeowners record of mortgage payments is considered in lieu of traditional credit scores.

11. Up to 6% sellers concessions can be used towards the FHA closing costs.

12. Gifts and housing grants or loans from FHA approved sources are allowed to be used towards the down payment.

FHA loans do charge an upfront mortgage insurance premium and an annual mortgage insurance premium. However, when considering the pros and cons, there are many more benefits of getting an FHA mortgage available to consumers who may not otherwise be able to purchase a home.

Rosemary Rugnetta has been writing since 2010 for FreeRateUpdate.com, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, mortgage processor, mortgage underwriter and property manager.
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