With prices of many houses dropping over the last few years, neighborhoods that seemed out of reach are now affordable to many prospective homebuyers.
One of the biggest stumbling blocks for borrowers is the amount of cash required to close. An FHA loan may be the right option. An FHA loan is a loan insured by the government, through the Federal Housing Administration, issued by qualified lenders.
For years lenders also offered several low down payment options: private mortgage insurance, combination first and second mortgages, etc. Borrowers and mortgage professionals often favored them over the FHA option. They were considered easier to process and were sometimes less costly. Changes in the mortgage industry, however, have eliminated most of these options and the time is right to reconsider the FHA option and the special features represented by these programs. Despite their reputation, some FHA requirements are surprisingly flexible.
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- In most purchases a down payment of only 3.5 percent is required (96.5 percent financing).
- The down payment can be from personal savings, gift, rent credit, down payment assistance programs or any combinations of these.
- Seller contributions towards certain closing costs are allowed up to 6 percent of the sale price. This can offset a significant part of closing expenses.
- Non-traditional credit items such as insurance and utility payments can be used to supplement an insufficient credit history for those without a credit score.
- Some lenders will consider a credit score as low as 580, with extenuating and non-repeating circumstances. That is well below the typical requirement of 640.
- -For borrowers with a debt-to-income ratio too high for standard guidelines, a co-borrower may be the option. FHA guidelines do not necessarily require the co-borrower to occupy the property as long as it is a family member.
There are many other unique features and with the increased allowable loan limits, an FHA loan may be the option that can make a deal work. Current rates are low and, even with the required monthly mortgage insurance payments, are as affordable as they have been in many years.
