Before we delve into the benefits that come along with an FHA loan we should first cover what exactly an FHA loan is. Essentially an FHA loan is a mortgage that is insured by the Federal Housing Administration. The thing that makes FHA loans different from many other loans is that the borrowers are required to pay for mortgage insurance which protects the lender from a loss if the borrower defaults on the loan. In doing so this allows the FHA lenders to offer more benefits because they are at a lower risk.
Another benefit that comes with using an FHA loan is that you don’t have to have perfect credit. In fact, a score of 580 or better is usually all it takes to qualify for an FHA loan. Additionally, for those borrowers with a score under 500 have an opportunity to under certain circumstances get a loan for “nontraditional credit history” on a case by case basis. It is worth checking out your options for loans.
The down payment for FHA loans are lower than many other similar loans as well. On average an FHA lender only requires a down payment of 3.5%. Additionally, with FHA loans the closing costs may be covered. This is because the FHA lenders allow home sellers, builders, and lenders to pay some of the closing costs.
FHA loans are especially popular for those buyers that need to do essential repairs to the home they are buying. The advantage of this type of loan (called a 203K) is that the loan amount is based on the projected value of the home after the repairs are done.
Last but certainly not least, FHA loans have a financial hardship relief allowance. Some loan servicers can offer some financial relief to FHA loan holders who have suffered a financial hardship in the form of temporary forbearance, lower interest rate, or deferral of part of the loan. Check with your lender for any of these options.