Advantages of FHA MortgagesFHA mortgages offer some unique advantages, and also come with some drawbacks. Here are FHA’s strengths:
- Qualifying is easier. Maximum debt-to-income ratios are higher (in some cases as high as 50percent may be allowed), and minimum credit scores are lower (580 for loans with at least 3.5 percent down payment of home equity, and 500 for loans with at least 10 percent ).
- You can become eligible for financing faster after bankruptcy or foreclosure (as soon as one year for a Chapter 7 bankruptcy that’s not your fault or any Chapter 13 bankruptcy, two years for othaer bankruptcies, and three years following a foreclosure sale).
- FHA loans have no risk-based pricing adjustments. Conventional mortgages from Fannie Mae or Freddie Mac (most non-government mortgages) come with surcharges based on credit scores, equity or down payment percentage, features like interest-only payments or cash-out refinancing, and property types (manufactured homes or condos for example). These surcharges can exceed five percent of the loan amount !
- Non-occupant co-borrowers are allowed. This means close friends or relatives can help you qualify for your home by applying for the mortgage with you. Parents can buy homes and take out mortgages for their children with a 3.5% down payment – no Fannie Mae or Freddie Mac program allows this.
- FHA mortgages can be assumed by qualified home buyers. If mortgage rates go up, this could make your home easier to sell .
- FHA allows you to finance home improvements when you purchase or refinance your home.
- FHA allows you to refinance into another FHA mortgage with no appraisal. If your home’s value drops below your mortgage balance, it won’t keep you from refinancing.
- FHA provides more assistance in the event that you have problems paying your mortgage.
- FHA appraisal and inspection requirements are more rigorous, which may protect you from buying a home with unexpected problems.
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