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Purchasing a home is a big decision, and you will need to approach it carefully. In case you do not qualify for a conventional mortgage, the Federal Housing Administration (FHA) loan can help you buy a home and fulfill your dream of owning a house. 

This type of loan is especially helpful for families and individuals who don’t have enough financial resources to pay hefty down payments and monthly installments. Though there are many downsides and benefits of these loans, the benefits outnumber the downsides. 

Let’s read about some realistic ways an FHA loan can help you buy a home. 

 

1. Lower Down Payment Requirements 

Conventional mortgage loans demand a down payment as high as 20%. This can be very difficult for people with fewer financial resources. This is where an FHA loan can help you. This loan offers a 3.5% down payment, which is very low compared to conventional mortgage options. 

This percentage of a down payment is applied if you have a credit score of 580 or higher. In the case of credit scores between 500 and 579, the down payment will be 10%. To get more relaxation and the best terms on a loan, you can apply for a FHA loan online with a reputed credit union or bank. 

Low down payment and monthly installments then make it easy for people to repay their loans. This way, it can be very easy and accessible for people to fulfill their dream of becoming homeowners. Also, an FHA loan is a great option for people and families who don’t have big savings. 

 

1. Flexible Credit Score Criteria 

As mentioned above, the requirements of an FHA loan are way less strict compared to other types of mortgage loans. While conventional loans need higher credit scores of clients, FHA loans can be attained with low credit scores and weak financial status. 

The FHA loan can be attained with a credit score as low as 500. However, for this, you will need to have a loan-to-value (LTV) ratio of 90%. Lenders can also decide their own LTV and credit score values, but the common overlay is a credit of as low as 620 for an FHA loan. 

The qualification scenario for an FHA loan becomes more accessible because of these factors. Some of the acceptable factors for FHA loans include: 

• Low debts
• Increased earning potential
• Verified cash availability
• Considerable non-taxable income

 

1. Low or No Closing Costs 

The closing costs in the case of FHA loans are negligible as compared to other loans. A home seller can pay up to 6% of the total sale price in terms of the buyer’s closing costs. For buyers, these closing costs can range from 3-5 percent of the FHA loan amount. 

You can also negotiate with the lender to let the seller pay some of this fee. This can help you get into your home without paying much out of your pocket. In case you don’t know what the closing costs are, here are some things that are included: 

• Property taxes
• Title insurance
• Lender fees
• Homeowners Insurance

There are also some other ways you can pay less upfront money. You can get some closing costs rolled into your loan. Another way is to use lender credits. However, with this approach, you will need to pay a slightly higher interest rate, but your lender will give you a credit that will help cover your closing costs. 

 

By utilizing these ways, you can get maximum benefit from FHA loans and pay as little from your pocket as possible.