As one of the most popular types of home mortgages, FHA loans can offer a unique and essential option, especially for first-time home buyers. Backed by the Federal Housing Administration, the loans combine less restrictive financial requirements with generous lending terms to create an attractive alternative.
While many borrowers may be aware of the 3.5 percent minimum down payment or that a credit score as low as 580 can still qualify, FHA loans also have lesser-known benefits that are worth factoring into a mortgage decision.
Buying A Fixer-Upper
The do-it-yourself home buyer will be intrigued by the FHA’s 203(k) program. Although they require detailed planning, these mortgages allow a borrower to buy a home with upgrades in mind.
With the right preparation, buyers can obtain a loan based on the improved value of the home and use the additional funds to make significant renovations. A streamlined version is also available to those interested in less substantial improvements such as painting or replacing fixtures. In either case, it’s an approach that can open the door to even more equity down the road.
Since the government insures FHA loans, they have a sincere interest in making sure borrowers do not default on their mortgage. To that end, the program features a substantial loss mitigation program to assist homeowners facing unexpected financial challenges.
For example, in the case of a natural disaster such as a hurricane, tornado or flood, those impacted may have the ability to enter a forbearance plan that reduces or eliminates payments for a period of time. Similarly, if the loss of a job or other hardship results in falling behind on payments, the lender is required to review the situation and explore options maintaining the loan. In any case, it’s added protection that other types of loans may not provide.
With interest rates expected to rise, there is yet another FHA loan feature that could prove helpful when it comes time to sell the home. Unlike most conventional loans, an FHA mortgage can be assumed by a qualified buyer who prefers the loan’s current terms to what is otherwise available.
The caveat is that it will make for a more complicated transaction, and they will need to come up with enough cash to compensate for the home’s equity. However, it could set the home apart from its competition, and be too good an option to pass up for some buyers.
For more insight into the FHA loan program, and other lending options available to you, contact me today.