One of the most important things to consider when buying a home is the kind of home loan you will be applying for. As a first-time buyer, you will be presented with several loan options, including; DPA Loans, USDA Loans, VA Loans, FHA Loans, etc. However, picking the best one for you out of these options can be quite overwhelming. This is why we have written this post.
 


If you are a first-time homebuyer, it is highly recommended that you go for a loan option with a long-term payment plan as well as low interest. Going by this, the FHA loan option is the perfect loan for first-time homebuyers.

FHA Loan And Its Benefits

Federal Housing Administration Loan, commonly referred to as FHA Loan, is a loan that has been specially created for low-income borrowers. FHA loans are flexible but can only be gotten from FHA-approved lenders like Prime Mortgage – Home Loans in Costa Mesa.

This class of loan offers several benefits. In fact, it has been acknowledged by many as one of the best loans for first-time buyers. Here are some of its benefits:

Flexibility

The requirements for most conventional loans tend to be strict and restrictive. Some may require extensive employment history and may not consider seasonal workers at all. FHA, on the other hand, has a flexible guideline. You can apply for the loan if you have a combined employment history of two years. This means the two years don’t have to be with one employer. Also, self-employed workers and commission earners can apply.

No Income Limits

This is also a factor in the flexibility of the loan. Some unconventional loans do not allow higher-income earners to take small loans. For instance, high-income earners can not qualify for a low down payment in a Fannie Mae HomeReady loan application. If you happen to be a high-income earner with bad credit, you may be out of luck. Thankfully, FHA gives room for even high-income earners with bad credits to apply.

Competitive Interest rates

A lot of things are taken into consideration in the determination of interest rates. As a result, there may be a rise and fall in rates. Irrespective of how low the interest rates of conventional loans get, FHA loans tend to offer a more competitive rate. That is because the loan is backed and insured by the government. In situations where the interest rate is at its lowest, the value of an FHA loan can cost less than the entire lifespan of the mortgage.

Elimination of PayOff Penalties

PayOff penalty is the payment you are required to make in case you decide to pay off your loan early. For instance, if your mortgage is to last for 15 years and you complete the payment after 10 years, you will be charged with a payoff penalty. The amount charged for this penalty is usually a certain percentage of the overall money you would have paid in the last 5 years. However, this is not the case for FHA loans. In fact, FHA explicitly removes any kind of penalty for early payoff.

Credit Score

To apply for conventional loans, you will need a FICO credit score of at least 620. Unfortunately, not everyone has a good credit score. With an FHA loan, you only need a 580 FICO score. It is even possible for people with a credit score of less than 580 to get FHA loans. However, they may be required to pay a higher down payment. Yet, their down payment is still lower than the down payment of a conventional loan.

Low Down Payment

Most conventional loans request a 20% down payment of the amount of the loan they have applied for. That may be too expensive for a lot of people. Thankfully, FHA only requires a 3.5% down payment for people with a FICO credit score of 580 and above. That’s significantly lower than the down payment of conventional loans. However, you may be required to pay up to a 10% down payment if your FICO credit score is lower than 580, which is still a steal if you ask us.

FHA does have its cons, but it is often the preferred choice compared to other conventional loans. Not to mention, it is more suitable to the needs of a first-time buyer who probably doesn’t have enough for a 20% down payment. Another thing to note is the high approval rate. As long as you meet the FHA loan requirements, there is a very high chance of approval.

So, make sure to reach out to an FHA-Approved lender to get the process started. With the loan sorted, you will have one less thing to worry about in your journey to owning a home.