Some Simple Advantages To FHA Loans

FHA loans are one of the most popular loans with borrowers today - and not just because they are insured by the federal government from default. Wait - you don't think that that helps you if you are a borrower, do you? It doesn't. A few of the people that I speak with about FHA loans think that the FHA insured loan will benefit them somehow - but the fact that a loan is insured by FHA actually does the borrower no good. FHA insures the loan in the event of a default by the borrower, the lender gets paid from the FHA insurance fund. Sorry for the bad news on this one, but at least we were able to clear up that confusion.

So FHA loans are popular because they have a low down payment, relatively flexible underwriting guidelines and low fixed rates -- among a few other reasons. When people ask me what the advantages are to an FHA loan, here are just a few of the things that I talk about as to why an FHA loan may be right for them:

• FHA requires a 3.5% down payment as opposed to at least a 5% conventional loan down payment
• The closing costs and down payment can be a gift from a relative (or employer)
• There are higher debt to income ratios allowed when qualifying
• A higher loan to value ratio is allowed with FHA loans
• FHA still allows a cash-out refinance of up to 85% loan to value
• The UFMIP can be financed into the loan
• There is never a prepay penalty on an FHA loan
• The seller may contribute up to 6% on a FHA loan

There may be a few other advantages when getting an FHA loan - but these are some of the simple ones that seem to come up in conversation all the time when speaking with borrowers about them.

Oh, and now we are all clear on the FHA insurance thing -- and who exactly it benefits: the lender.

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