The American dream is not complete—not by a long shot—if you have not made the first payment for your house. First-time home buyers are the icing of the mortgage industry and are often the most sought after type of borrower by commercial banks. Over the past decade or so, there has been an increasing number of first-time buyers choosing mortgage loans insured by the Federal Housing Administration over traditional loans. Note, however, that borrowers are still required to pay mortgage insurance premium on the FHA loan because unlike the conventional loan, it does not have very strict standards and eligibility requirements.
Well, the reasons are quite straightforward. The first is that requirements to qualify for the FHA loan are not as strict as those for conventional loans. Secondly, with a payment of as low as 3.5 percent and a credit score of 580, a borrower can get a great loan with very friendly terms. Thirdly, the loans are insured by the federal government meaning that lenders do not shoulder all the risk in the event the borrower defaults on payment. Over the decades, this has brought in more investors who have injected the much-needed funds into the FHA lending system.
All the best features of other loans in a single package
To say that shopping around for the perfect mortgage loan is an overwhelming and demanding task is an understatement, especially if you are a thorough home buyer looking to get the best deal out there in the commercial world. First-time home buyers often walk the whole yard of understanding he market and the various mortgage products but at the end, all they want is a simple, straightforward, and flexible loan like the FHA. With this loan, borrowers who cannot raise the 20 percent down payment, are not approved for private mortgage insurance, or have low credit score may want to reconsider whether this flexible and easy loan is right for them.
Because many people buying a house the first time often have other huge responsibilities in life e.g. paying off college loan or raising a young family, a loan with a flexible amortization term and repayment duration would go a long way in making life easier for the borrower. Besides, in making FHA loans available only for people seeking to buy primary residences, this mortgage system pretty much locks out most other home buyers and businesses to increase the chances and reduce loan competition for the qualifying home buyers.
Another thing that makes the FHA loan perfect for first-time home buyers is that the house must meet certain laid-down standards during appraisal. If you have already picked a home to purchase and it fails the appraisal standards scrutiny, the seller may be required to agree to meet the costs of repairs before the loan is approved. This means that the home buyer is naturally protected from bad investments and death-trap houses that would cost a fortune to repair and restore.
FHA loan limits, interest, and other variables
No discussion about a mortgage loan ends before the matter of loan limit, and interest rates are mentioned. For this specific loan, the limits are set by the Federal Housing Authority, and they vary by state and county. Comparatively, though, FHA loans have prominently higher loan limits compared to conventional loans all variables considered. The process of searching for lenders is free and easy and you can do it unanimously. You get to browse offers and request loan quotes from lenders and contact them directly when you find those who offer what you need.
There are powerful tools developed that first-time home buyers can use to compare the current interest rates for various FHA loans. The process involves submitting important data including credit score, monthly debts, and income and the system can easily estimate what interest rate and the maximum amount you qualify for. Because you would still be under no obligation, you can carry out your research and when ready to apply talk to a lender with the best offer you can find.
When the FHA program was established as a solution to the unfortunate foreclosures and mortgage payment defaults in the 1930s, it was meant to stabilize the housing market and encourage lenders to invest in the venture with adequate insurance. Today, first-time home buyers get to take advantage of the flexible terms to own a home with minimal hassle. The 3.5 percent minimum down payment required is a major attraction to many applicants because most already have a significant amount in savings or have incomes that comfortably qualifies them for the FHA loan.