Whether you’re about to buy into an HOA community for the first time or have bought and sold a house before, you’ll need to know a little bit about the different mortgage products. There are several choices and you need to know about each option to make the right decision. Because this is such a large financial investment, you should compare various home loans to know which suits your budget and overall situation. One option is a FHA loan and it has five big benefits.
5 Big FHA Loan Benefits
There are many types of mortgage with distinct advantages and disadvantages. Generally, you’ll have a choice of fixed rate, adjustable rate, government-insured, conventional, VA, USDA, jumbo, conforming, and FHA. That’s certainly a lot to take into consideration and presents the difficulty of knowing which is the best option. It’s usually a conventional, conforming home loan that is the best type of mortgage. But, some borrowers won’t meet the criteria.
“FHA loans are government-insured loans backed by the Federal Housing Authority. Private lenders fund the loans but the government insures them against default. Since the government covers losses if you foreclose, lenders have minimum standards for qualification. Though some lenders will impose tougher standards, such as minimum credit scores or reserve guidelines (amount of “rainy day” savings) for FHA loans, most honor the minimum guidelines set out by the FHA. These guidelines offer the best hope for many borrowers to qualify for home loans on good terms they can afford.” —San Francisco Gate
And, let’s face it, there are already a number of costly home buyer debacles to avoid, so you need to get the right home loan. If you want a little more flexibility, some loans just won’t be right for you. But, there are other types of mortgages which give borrowers a little more peace of mind. One such product is a FHA loan. It is a mortgage insured by the Federal Housing Administration. While it is a bit more expensive, a FHA loan has the following big benefits:
- A lower credit score is okay. If you apply for a conforming, conventional home loan, you’ll need pretty good credit to be approved. Generally, your credit score will need to be in the upper 600’s, starting at 680 and going higher from there. But, a FHA loan only requires a credit score of 580. If you’re credit score is under 580, you’ll need a higher down payment of 10 percent.
- Only a 3.5 percent down payment. For borrowers who have a credit score of 580 or higher, they are able to put down as little as 3.5 percent. That’s a significant amount of a down payment reduction. However, it does mean you’ll have to pay PMI or private mortgage insurance. Even if you do put down 20 percent or more, a FHA loan requires you carry PMI.
- Possible closing cost coverage availability. FHA loans allow sellers, builders, and lenders to pay part of the borrower’s closing costs. These can include the appraisal, credit report, and even title expenses. It’s just another benefit of a FHA loan.
- You are able to borrow money for repairs. With a FHA loan, you might also qualify for a 203(k) loan. It’s money you can borrow, not based on a house’s appraised value, but on its projected value once all updates and repairs are made. This is a great way to do some renovation while increasing the property value.
- Financial hardship relief is allowed. Homeowners with a FHA loan also have the benefit of financial hardship relief, if circumstances arise. It’s not the perfect solution, but it is more peace of mind for borrowers.
If you are considering buying or selling a home in Orlando’s Hunter’s Creek, or another community, contact us for the latest market information. We are local and experienced in all facets of residential real estate, here to help you, when you need it.