When choosing a mortgage, many homeowners and future homeowners are caught in a tug of war when picking which loan program is right for their financial situation. The FHA loan is the standard when it comes to giving you the most flexibility with regards to your mortgage. Below are five benefits of choosing and FHA loan. Hopefully this helps provide some guidance when choosing your next mortgage either as a first time home buyer, or a homeowner looking to refinance. To get further help it is wise to consult with a mortgage broker that specializes in FHA loans.
Here are the top 5 benefits of an FHA loan:
- Low Down Payment
- More Flexibility
- Increased Loan Limits
- Lower Interest Rates
- Streamline Refinance
LOW DOWN PAYMENT
Currently, FHA requires a 3.5% down payment, designed to help out that first time home buyer, who might not have 20% set aside to put down on a new home purchase. The current loan amount limit in Denver County is $561,200, which means you would need $19,642 down to purchase. There are also county and town grant programs that offer DPA, also known as down payment assistance, so you might be able to purchase your next home with as little as $1000 down, out of pocket. The allure of down payment programs has a lot of interest, so it is important you know the terms of type of down payment assistance you get. CHFA and CHAC are two Colorado State run programs which are best funded, and offer the best terms.
FHA loans cater to the first time home buyer in that there really is not a credit requirement, that you will find with conventional loans. For example, if you do not have a credit score, FHA will use alternative lines of credit like a utility bill or cell phone bill to qualify you. There is also no credit score minimum on FHA loans. FHA will offer 3.5% down to a 580 score and no asset requirement. With regards to derogatory credit events like a bankruptcy or foreclosure, FHA does not have long waiting periods before they will issue credit to you again. You can actually get a mortgage with an existing CH 13 bankruptcy. They also have reduced their upfront mortgage insurance .25% to first time homebuyers, and also will drop your mortgage insurance when your loan reaches 78% LTV, where as in the past it was on there for the life of the loan on a 30 year fix, regardless of down payment. We have also been noticing more condo projects be FHA approved, which in the past has been a challenge.
Another term you will here a lot of during the loan process is DTI, aka Debt to Income Ratio, which is the calculation used to approved your loan. The calculation takes your gross income in relation to your debt reporting on your credit report only, to determine how much home you can afford, and how much debt you can handle monthly. For FHA, that requirement is a lot more flexible then conventional loans, as we have seen approvals as high as 55%. Conventional Fannie Mae and Freddie Mac loans, especially with the minimum down payment, are capping out around 43% tops. This means that you can get approved for a lot more home, with less down, going FHA. This is crucial for you to know, especially when your mortgage broker is issuing a pre-approval letter to you, and your real estate agent.
INCREASED LOAN AMOUNT LIMITS
Currently the FHA County loan limit in Denver is $561,200 to keep up with the increase in home prices, so you can compete with other conventional offers. There are also specific high cost counties where the limits go even higher, like Eagle County, where the limit is $726,525. To check your county FHA loan limit, click here. It is very important you check the county loan amount limits before putting an offer in on a home. Weld County currently has only a $385,250 loan amount limit.
LOWER INTEREST RATES
FHA rates are lower then conventional rates when comparing the minimum down payment requirements. Even the best first time home buyer program with Fannie Mae, called Home ready, will carry a rate almost .5% higher then FHA. Also to note, if you are a first time home buyer, and your credit is not the greatest, because there is no history, FHA will not penalize you for that. In most cases, you will get some of the best FHA mortgage pricing with credit scores as low as 640. In relation, a 640 score with a conventional loan, will have huge pricing adjustments, and might not truly compare to that best FHA score, unless you have a 720 or higher. Key word here is flexibility. FHA wins here hands down.
FHA has a feature with it's loans in that you can Streamline refinance if the market allows for it. For example, if your rate is 4%, and the market has dropped to 3%, then you can refinance your FHA loan under the Streamline feature, with no closing costs, appraisal, or out of pocket expenses, in most cases. There also has to be a net benefit to you, the homeowner, as this program is insured by the government, thus protecting you from any unnecessary fees. Currently as of today 07/15/2019, there has been a huge surge in FHA Streamline Refinances, since we are at almost 3 year lows on interest rates. This process will save homeowners hundreds of thousands on their mortgage payments, in terms of the amount of interest they can save over the life of the loan. The other benefit of this FHA Streamline refinance is that there is NO COST to the borrower, compared to a conventional refinance, where the homeowners could pay thousands of dollars just to complete the process.
It is always important to compare mortgage programs when choosing a loan program for your next home purchase or refinance. You should get at least 3 quotes to see which one makes the most financial sense for you. Conventional loans offer first time home buyer programs as well, so ask your Denver mortgage broker about Fannie Mae Home Ready or Freddie Mac Home Possible. These are great programs, just like the FHA program, and might benefit you better. If you have any questions about the FHA Mortgage process, or any other loan program, you can reach Brian Quigley at firstname.lastname@example.org anytime or call direct at 720-524-3215.
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