February 24, 2020
What makes FHA home loans a great option for first-time home buyers? Anyone purchasing their first real estate, working with a realtor, and getting their credit ready for a home loan for the first time should know about the FHA mortgage program and it’s lower interest rates and flexible income requirements.
FHA Loan Guidelines Are More Flexible
It’s true that FHA mortgages require a borrower to have two years of employment history. But that history requirement does not have to be with a single company or employer.
Borrowers should know that some frequent job changes are acceptable to FHA lenders, but overall your employment record is reviewed on a case-by-case basis when necessary. You may want to explain any unusual job circumstances to a loan officer up front to see if special documentation is needed.
Income Guidelines
There are flexible income guidelines that allow seasonal workers, those earning commissions, self-employed borrowers, and contractors to qualify for a home loan the same as a more traditional employee. You do not have to work a traditional 9-to-5 job to qualify for an FHA mortgage as long as your income is stable, reliable, and likely to continue after the loan is closed.
Interest Rates For FHA Loans
In recent years, interest rates have moved to multi-year lows at times. Conventional mortgages traditionally have had higher interest rates, and when forces conspire to push those rates lower, those seeking FHA loans potentially reap the benefit.
FICO scores help determine the interest rates a lender will offer you, and the lower your rate, the more you save over the lifetime of the mortgage. Some FHA borrowers choose a fixed-rate mortgage because they want to stay in the home for a long time.
Others choose an adjustable-rate mortgage that can feature a lower introductory rate; these loans are great for people who know they will sell the home before the loan is fully paid off. An adjustable-rate mortgage works best when the borrower has a plan to address the increases in the rate over time.
Low FHA Home Loan Down Payments
Some house hunters want to make a 20% down payment on a conventional mortgage to avoid mortgage insurance, and for those who can afford to do so, that’s a great place to be.
What about the homeowners who cannot come up with 20% down?
FHA mortgages only require 3.5% down unless your FICO scores are within a lower range that requires 10% down instead. FHA loan rules say those applying with FICO scores between 500 and 579 must pay 10% down; all others technically qualify for 3.5%.
Lender standards will also apply so be sure to ask a loan officer what additional credit score considerations may affect your application.
But even those required to pay 10% down don’t pay nearly as much as a 20% down payment; if you qualify for the loan, your savings compared to a conventional mortgage are clear. If you still aren’t sure, ask a participating lender to break down the down payment and closing costs for you and then compare those to the same breakdown from a conventional lender.
No Early Payoff Penalties
FHA loan rules expressly prohibit being charged a penalty for paying off your loan early, overpaying on your monthly mortgage payment, or otherwise fulfilling your financial obligations early.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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