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Buy Your Dream Home, Even with Less-than-Perfect Credit

Benefits of an FHA Loan

The Federal Housing Administration (FHA) offers a variety of Home Loan programs with flexible options, including 15- to 30-year Fixed Rate loans, and Adjustable Rate Mortgage (ARM) with an initial fixed rate period ranging from 1 to 10 years.

In addition to a wide variety of loan options, benefits of FHA Loans include:

  • Credit scores as low as 580
  • Generous amount of gift funds allowed
  • More lenient debt-to-income qualification requirements than traditional mortgages
  • Ability to refinance up to 97% of your primary home’s value or buy your primary home with as little as 3.5% down.
  • Freedom to pay off your mortgage any time without prepayment penalties.

How do FHA Loans Work?

Although FHA Loans are backed by the federal government, you’re not actually borrowing from the government. Instead, you’ll work with a private, FHA-approved lender.

A portion of each monthly payment is applied toward the principle balance and a portion toward the interest.  At the beginning of the loan term, most of your payment is applied to interest.  As time goes, the portion applied toward principle gradually increases.  Near the end of the term, most of your payment is applied to the principle balance.

To pay your loan off faster, you can pay more than the minimum required.  The difference in your payment is applied to the principle, reducing your balance faster, and reducing the interest you pay over the life of the loan.

While similar to a traditional home loan, FHA Loans are intended to make homeownership accessible to those who may not qualify for a traditional mortgage, so it is easier to qualify.  You may buy a home with as little as 3.5% down, and finance the rest.  FHA also allows lower credit scores to qualify.  And you can still qualify for a great interest rate since the loan is backed by the government and therefore less “risky” for the lender.

The tradeoff for relaxed qualification criteria is you’ll pay an FHA Funding Fee at closing (this may be financed) and your loan will most likely require mortgage insurance, a small sum added to your monthly payment.

We’re here to help. So if you’re not sure if this type of loan is right for you, call us at (888) 273-8734 or schedule a free consultation.


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