Learn why FHA loans may be a perfect option for first-time buyers.
While first-time buyers are hunting for their perfect home, they’ll also need to be on the hunt for the perfect mortgage—which may seem more overwhelming and not as enjoyable as touring properties. There are several financing options to choose from and programs available. It’s all about finding the one that fits best. At Supreme Lending, our goal is to provide the guidance you need to make informed decisions and be confident with your loan choice.
In this article, we’re highlighting a mortgage option that is designed specifically to help first-time buyers, FHA loans. Discover the many FHA loan benefits and why this option may be right for you.
Understanding FHA Loans: A Brief Overview
First, what exactly is an FHA loan? The Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD), insures FHA loans, which are issued by approved lenders. This insurance protects lenders against losses if a borrower defaults on their loan, making FHA loans less risky for lenders and consequently more accessible to first-time buyers.
FHA Loan Benefits
1. Low Down Payments.
To help overcome one of the biggest barriers for first-time homebuyers, FHA loans typically require a lower down payment compared to Conventional loans. This makes homeownership more accessible to people who may not have substantial savings or want to pay less upfront costs.
2. Flexible Credit Requirements.
FHA loans are more lenient when it comes to credit, allowing borrowers with lower credit scores to qualify for financing, which is beneficial for those who are still establishing their credit history. See common credit score and down payment requirements here.
3. Assumable Loans.
What does this mean? FHA loans are assumable, which means that if you sell your home, the buyer can take over your FHA loan, potentially offering them a competitive advantage in a rising interest rate environment. Restrictions on assumability may apply.
4. Lenient Debt-to-Income (DTI) Ratios.
DTI compares a borrower’s debt to their monthly income to measure’s their ability to manage monthly mortgage payments. FHA loans often allow for higher debt-to-income ratios compared to Conventional loans.
5. Lower Mortgage Insurance Premiums.
While FHA loans require mortgage insurance premiums (MIP), the premiums are often lower than those of Conventional loans, especially for borrowers with lower credit scores or smaller down payments. In fact, the FHA annual mortgage insurance premium was lowered from 0.85% to 055% in 2023 for most borrowers.
6. Seller Closing Cost Assistance.
Another benefit buyers could take advantage of is negotiating seller concessions to help cover upfront costs. FHA loans can allow sellers to contribute up to 6% toward the buyer’s down payment, appraisal fees, or other associated closing costs.
7. Gift Funds.
Gift funds are given to someone with no expectation of repayment, for example parents gifting their newlywed children money for a down payment. FHA loans allow borrowers to use gift funds from family members or other eligible sources to cover their down payment and closing costs. Note: A gift letter is required to confirm the gift funds.
8. Renovation Loans.
The FHA 203(k) Renovation loan is a home rehabilitation financing option, which allow borrowers to finance both the purchase price of the home and the cost of eligible renovations or repairs into a single loan. This helps buyers afford any necessary improvements and can open their home search to consider fixer-uppers.
9. Streamline Refinancing.
FHA loans offer a streamlined refinancing option, known as the FHA Streamline Refinance. This allows borrowers to refinance their current FHA loan with minimal paperwork and documentation, saving time and money.
10. No Prepayment Penalties.
FHA loans do not have prepayment penalties unlike some traditional mortgages. This allows borrowers to pay off their mortgage early without facing additional fees or charges, which can save money on interest over time.
11. 100% FHA Financing Available.
Did you know Supreme Lending offers two competitive FHA 100% financing options? Through the Chenoa Fund or the Supreme Dream program, these include a 30-year fixed-rate FHA loan paired with a second forgivable loan to be used toward down payment, closing costs, and prepaids.
These benefits make FHA loans an attractive option for first-time homebuyers, offering accessibility, flexibility, and affordability to achieve homeownership.
Ready to get started? Contact Supreme Lending today to learn more about FHA loans or other mortgage services we offer.