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7 Reasons Why FHA Loans Are Cool with First Time Home Buyers


If you are a first time home buyer considering jumping into the market next year, you will likely consider FHA home loans.

Getting approved for home financing has become challenging for most Americans so we decided to explore why FHA has become so popular with first time home buyers.  The Federal Housing Administration was created by the U.S. government during the Great Depression in an effort to promote home ownership across the country.

Since then more than half of first time home buyers have chosen FHA mortgages for many reasons. Over the last 20 years, FHA has dominated the market for first time home buyer loans.

1. Borrowers only need a 3.5% down-payment to purchase a home compared to 10 to 20% needed for traditional loans from private lenders.

2. FHA interest rates are as low as any interest rates in the land helping to ensure that purchase mortgage financingis affordable.

3.  There is no penalty for home refinancing or early pay-off.

4.  Americans also like FHA because they are lenient with their credit guidelines. Consumers with a range of credit scores can get financing at the same interest rate regardless of their credit. This government program encourages lenders to offer a home loan for bad credit if the borrower can demonstrate significant compensating factors like solid money in savings or the ability to to make a larger down-payment.

5.  FHA makes refinancing easy with flexible guidelines that do not require as much equity as private home loan lenders. People can refinance easily with only 3.5% equity because the loan to value guidelines permit refinancing up to 96.5%.

6.  FHA even allows you to get cash out and refinance debt up to 85% loan to value.

7.  FHA even offers the streamline refinance in case the interest rates fall after a new home buyer gets a mortgage.

We anticipate that FHA will remain popular in 2012 but if HUD continues to raise the mortgage insurance rates we predict their will be a backlash against government financing. Many finance executives believe that private money lenders will roll out some aggressive home loan programs in 2012 and 2013 and that could erode the FHA market-share as well.

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