These are a good option for low-to-moderate income-earners, or lower-credit-score borrowers, and are insured by the Federal Housing Administration (FHA). They can be a 30 year term or a 15 year term. FHA loans are usually a fixed rate, but can also be an adjustable rate mortgage (ARM) if desired. Here’s why you’d consider a FHA loan:
- If you have less money saved for down payment and/or cash-to-close, the FHA loan allows for just a 3.5% down payment, which can come from a gift from a family member. The sellers can also pay your closing costs/prepaids, up to 6% of the purchase price.
- Easier credit standards are a huge benefit to the FHA loan, which is designed to help Americans achieve home ownership. With that in mind, it welcomes lower credit score borrowers, who may have some late payments, derogatory collections, or more recent bankruptcies, short sales, or even foreclosures.
- Lower-income borrowers & first-time buyers often have higher debt ratios, especially if they have student loans. The FHA loan allows for higher debt ratios, and more flexible employment history requirements.