Three Advantages of FHA Loans

house with porch

You may have heard good things about the FHA loan program, but is it something you should pursue? The FHA (Federal Housing Administration) has provided mortgage insurance on certain loans since 1934. So, although these loans are called “FHA loans,” they actually come from the lender and are simply insured by the government.

FHA-approved lenders (such as Guardian Mortgage) carry less risk with these loans because of their government backing, so you get the benefit of advantages that conventional mortgages might not offer. Keep reading to see some reasons why you might want to explore the possibilities of an FHA loan.

1. FHA loans don’t require a large down payment.

The traditional benchmark for a down payment on a home has typically been 20% of the purchase price. In times like these when real estate prices are high, that can add up to quite a large sum of money. But with FHA loans, only a 3.5% down payment is required. It’s a great option for people with limited cash on hand. As a note, when less than 20% is put down on a home, government mortgage insurance will be required. It’s generally not cancellable, but the tradeoff of becoming a homeowner might benefit you in the long run.

2. FHA loans have different guidelines than conventional loans.

Perhaps you’ve tried to get a loan before but were denied because the numbers didn’t work in your favor. FHA loans are designed to encourage home ownership for people who may not be able to afford one otherwise. If your FICO credit score disqualified you from another type of loan, you might find that the FHA loan offers more leeway, based on other factors. And if you don’t have a credit record, the FHA does will allow for one borrower to have a “nontraditional credit history.”

3. FHA loans allow for the use of gift funds.

A nice feature of FHA loans is that they allow gift funds to be used as part of the down payment with less strict provisions than conventional loans. If you received a large sum of money from family, close friends, future family, an employer, charity, or government grant it can usually be documented and used as a source of funds.
Like other loans, FHA loans have strict guidelines. Choosing a lender with decades of experience in FHA loans is important because there are specific rules to follow that can often be overwhelming. Let us guide you through every step of the way. We’re here to answer questions at 800.331.4799 or ask a Guardian Mortgage Loan Originator about our FHA loan program.