FHA is the Federal Housing Administration and is a program that has been at the heart of the US housing recovery that has transpired over the past 5 years.
This program which is governed by HUD (Housing and Urban Development) has been instrumental in helping potential buyers achieve their dreams of homeownership when they previously thought that was unattainable.
There are many benefits to this program which will be outlined below.
Credit: The FHA programs can allow someone to qualify for loan with a fico credit score all the way down to 580.
The 580 figure is not set in stone as typically there need to be compensating factors such as stronger income and no major credit events in the past 2-3 years.
Major credit events refer to Foreclosure, Bankruptcy, and Short Sales. Often times if there are no major credit events and the income is sufficient, a prospective buyer can qualify with a credit score down to that magic 580 mark.
Down Payment: Another excellent feature of the FHA program is the minimum down payment required. Only 3.5% of the purchase price is the required down payment.
With Conventional financing often times you need 5%-20% down; however, FHA only requires 3.5%. This is quite helpful to those buyers that do not have a large down payment to work with; they can put 3.5% down and still qualify.
That 3.5% can also be a “gift” from family. This minimum down payment guideline has really helped those folks that otherwise would not have been able to buy.
Low Rates and Low PMI: FHA interest rates are always lower than conventional or jumbo rates. The FHA program likes to offer low rates to its borrowers to help them qualify. Also, the PMI on FHA loans is typically lower than conventional PMI.
Private Mortgage Insurance aka PMI is an insurance taken out by the lender and paid for by the borrower. This insurance insures the lender against default by a buyer if they put less than 20% down (always required with FHA no matter the down payment).
Both FHA interest rates and PMI rates are lower than conventional program rates, and much more affordable for those that do not have a sizeable down payment or a credit score above 720*
The FHA program is a viable alternative to conventional financing for anyone that has a credit score lower than 720 or only can come up with a minimum down payment.
The low interest rates and low PMI make it extremely affordable and very attractive to all buyers which is the very reason it has been and continues to be an integral part of the housing market.