FHA loans are commonly thought of as first-time homebuyer loans, and in many respects these loans are the perfect fit for buyers new to homeownership, however FHA loans have many more uses for buyers at any stage in life. As such, we’ll go over the benefits and uses for an FHA loan to help you determine if it’s the right fit for your needs.
Some of the hallmarks of an FHA loan include the following benefits and program requirements. These are the facts and figures that are most readily associated with the FHA loan, and thus most buyers don’t realize the program has additional use cases.
- Down payment as low as 3.5 percent (Lower down payment options)
- Lower credit score requirements than conventional loans
- Mortgage insurance is required for all FHA loans
Before moving on, let’s unpack these benefits. FHA loans are often thought of as a first-time borrower product due to the lower down payment. For buyers fresh out of school or with little cash on hand, FHA loans offer the ability to put less money down up front and still qualify for a loan. Similarly, the credit score requirement is more lenient than a conventional loan product because the FHA loan is a mortgage product option meant to make homeownership more accessible. While mortgage insurance is an extra cost associated with an FHA loan; it is not a cost required up front; thus, the program still benefits buyers with less money available at closing.
FHA loans have additional uses beyond a traditional first-time mortgage, as well. These uses are often overlooked due to the fact that FHA loans and first-time buyers are such a natural fit. However, many buyers are using FHA loans for the following.
- FHA Refinance Loans
- FHA Renovation Loans
- Energy-efficient Mortgages
Some people might assume FHA loans are a one-time product, however this is not the case. With products such as refinancing and renovation, these loans meet the borrower wherever they might be in life. While FHA loans are restricted to the borrower’s primary residence, there is no restriction on the number of FHA loans a borrower can take throughout one’s lifetime. FHA loans may be applied to single family homes, 2-4 unit multifamily homes, condo units, and certain manufactured home purchases. This makes the FHA loan a highly flexible product that can be used across a buyer’s lifetime in a variety of instances, specifically for those buyers with less cash on hand.
It’s important to note that FHA loans are not a one-size-fits-all product. The FHA loan is often the most cost-effective option for borrowers with low credit or with little savings. However, for borrowers with at least 10% down payment saved or those with good credit, often an FHA loan is more expensive than a conventional loan. This is largely due to the private mortgage insurance requirement. FHA loan restrictions such as maximum loan amounts and required FHA appraisals are among the reasons an FHA loan may not be the proper fit for every buyer.
Contact an Evolve Home Loan Advisor today to learn more.
