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5 Reasons Why First Time Home Buyers Like FHA Loans

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Many people have a distorted view on FHA home mortgages and first time home-buyer loan programs. One of the common misperceptions on FHA financing is that the loan programs are only for new home buyers and borrowers with low incomes. It is true that the Federal Housing Administration was formed with the intention of extending credit to all types of people fairly, but there is no minimum or maximum income requirement. However, when underwriting these government loans, the FHA mortgage lenders consider the borrower’s entire profile; rather than just a credit score or bank reserves. It’s no secret that the Department of Housing and Urban Development takes more risks on people with poor credit scores under many of the FHA loan programs.

  1. Low Down-Payment Home Loans
  2. Competitive Interest Rates for Buying a House
  3. Reduced and No Cost Mortgage Opportunities
  4. Flexible Credit Guidelines with 500 Minimum Credit Scores
  5. No Pre-Payment Penalties for Refinancing

Although FHA lenders do make exceptions on some borrowers to spend up to and even over 50% of their gross monthly income on their combined monthly debts, we prefer to keep this ratio at or below 43%. However, the automated underwriting system often approves borrowers for home loan payments that are above their comfort zone, because new homeowners often start spending more money. Buying new furniture and making home repairs can result in increased expenses.

Maybe the most notable downside to loans insured by the FHA is that they require both an upfront mortgage insurance premium and then monthly insurance payments on top of that. Unfortunately in some cases these premiums have become twice as high as the private mortgage insurance offered on conventional mortgages. The rise in FHA insurance rates can be directly attributed to the increase in loan defaults and depleted reserves under the FHA loan programs.

However with a minor down-payment of only 3.5%, lenders continue to match first time home buyers with FHA loans. According to VIP branch manager, Pat O’Connell, “You can’t forget that FHA has given millions of Americans the ability to become a homeowner with their flexible purchase mortgages.” O’Connell continued, “Many people use FHA home loans like training for new homeowners because the borrowers will often only keep the loan until they have enough equity to shed the mortgage insurance or they will refinance into a loan with lower housing expenses derived from reduced mortgage insurance premiums.”

It appears that FHA will be hiking insurance premiums once again in 2013, so it this could limit the loan origination from some FHA lenders, but as the purchase market roars back with affordable housing options, you can bet that FHA will be ready to extend first time home buyers loans to those in need.

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