What makes FHA loans such a popular choice among homebuyers?

Question: Dear Kari, As a single working woman, I dream of owning my own home. I recently spoke with a real estate agent, explaining that while I have some savings, I don't have a lot of money for a down payment. The agent suggested a Federal Housing Administration (FHA) mortgage loan would be a great option for me. Now I'm wondering if that's really a good idea. Answer: Thank you for that excellent question. While being a first-time homebuyer can sometimes be frustrating, the good news is that several excellent mortgage loan programs are available to help homebuyers overcome some of the biggest financial hurdles in the homebuying process. One of the most popular mortgage loans is an FHA loan, which is insured and backed by the Federal Housing Administration, which is a part of the U.S. Department of Housing and Urban Development (HUD). The FHA doesn't directly lend money, but it allows lenders to offer this loan and for more favorable loan terms along with providing several other advantages for homebuyers who might not qualify for other types of mortgage loans. The FHA offers a loan insurance program to help more people become homeowners. This program protects FHA-approved lenders from financial loss if a homeowner defaults on their mortgage. Homebuyers are responsible for the cost of this mortgage insurance, which is divided into two parts: an upfront fee and a recurring annual premium. The one-time upfront mortgage insurance premium (UFMIP) is paid at the closing in cash or finance it by adding it to your total loan amount. The annual mortgage insurance premium (MIP) is a recurring charge paid in monthly installments as part of your regular mortgage payment. The cost of the annual MIP is determined by your loan amount, the length of your loan and your loan-to-value (LTV) ratio. Here are some of the benefits of buying a home with an FHA mortgage: · The good news is that FHA loans aren't just for first-time homebuyers, they are also for repeat homebuyers to also use them to purchase or refinance a current home. The key requirement is that the home must be your primary residence. · With an FHA mortgage loan, homeowners can make a lower down payment of 3.5 percent of the home's purchase price, and in some cases even less. · FHA mortgage loans are more lenient with credit score requirements, often accepting applicants with a score of 580, and in some cases even a lower credit score could be considered. · The debt-to-income (DTI) ratio is more flexible with some cases as high as 43 percent or more. This refers to borrowed money used for the financing. · FHA mortgage loans have competitive interest rates. · FHA lenders may be able to in some cases offer lower closing costs and/or maybe contribute toward those expenses, helping the financial burden on homebuyers. · Exciting news, in California, you can use an FHA mortgage loan to purchase a duplex, triplex or fourplex, as long as you live in one of the units as your primary residence for at least one year. You can rent out the other units to generate income. For homebuyers who want to combine homeownership with real estate investing, this would be a most wise choice. FHA loans generally don't apply to properties with five or more units because they are considered commercial properties. The amount that can be borrowed with an FHA loan must be within the FHA loan limits for your specific California county, along with the type of property you're purchasing. These limits are higher for multi-unit properties, such as duplexes or fourplexes, and they vary, depending on the local housing market. FHA mortgage loans can be a great option for many homebuyers, especially for those who may not have a large down payment, have a less-than-perfect credit score or a more modest income. Before making a final decision, it would be advisable to meet with a few FHA mortgage lenders. Lenders aren't all the same, and you'll want a knowledgeable professional to help you understand your options and make your best mortgage loan choices. I wish you the best in your homebuying adventure. This information is for general consumer purposes and should not be considered legal or loan advice.