FHA Home Loans: What’s So Great About Them?

The Federal Housing Administration (FHA) has helped millions of individuals in their expeditions to owning homes. Compared to other loan programs, the FHA proves to be such a standout because of its “everyone deserves a second chance” mentality in owning homes. That said, let’s go over a few key advantages the FHA has over its contemporaries.


Smaller Down Payment


One of the most significant benefits a qualified loanee gets from FHA loans is the chance to put in a smaller down payment. It’s reported that about 64% of those who resort to FHA loans are due to its meager down payment opportunity. This, by far, is considerably the greatest benefit of going for an FHA-backed up mortgage to purchase a house.  


Debtors who utilise this loan program can put in a down payment as little as 3.5% of the entire appraised value or the purchase price, whichever one is smaller. On the other hand, with conventional mortgages, debtors usually have to put in at least 5%, sometimes even more. That said, this puts the FHA program on an even more advantageous level among aspiring homebuyers who, not only have the credit score to back them up, but also the resources to pool to keep up with payments. This is also almost usually the case with several first-time homebuyers.

what is fha loan?

Lower Debt-to-income ratio and Required Credit Score


One’s credit score usually becomes a make or break for many home loan applicants. At present, the maximum eligible debt scale for debtors are 43% and 31% respectively. What this means is that a debtor’s monthly housing expenses should not go beyond 31% of his or her gross monthly income. On the other hand, their collective debt situation should be no more than 43% of their monthly income, as well. Should the applicant have a workaround or a valid reason as to why his or her numbers are the way they are, then an arrangement may be worked on.


The base credit score for an FHA grant is 500. This permits a borrower to purchase a house by letting out a 10% down payment. For anybody who has a credit score of 580 or better, only a 3.5% down payment will be required.

Use of Gift Funds

FHA also allows the utilisation of gift funds during closing. Many times, even 3.5% of a home’s value can be costly and many people still won’t be able to afford the entire amount. Should a loanee have generous parties vouch for him or her, this may be allowed. Up to 100% of a down payment during closing may be used. This is a perk not present in many other loan programs.


Required Documents


Paperwork needed for an FHA application is as follows:


  • Names and location of your employers (past two years)
  • Gross monthly salary at your current job(s)
  • Pertinent information for all checking and savings accounts
  • Pertinent information for all open loans
  • Complete information for other real estate you own
  • Approximate value of all personal property
  • Certificate of Eligibility and DD-214 (for veterans only)
  • Current check stubs and your W-2 forms (past two years)
  • Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals

For more information on FHA loan limits, click the link!


By: Karissa