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Benefits of FHA Loans

The lenient requirements and qualifications of FHA loans make them the easiest option for you, whether you’re buying or refinancing.

The FHA Loan program offers a variety of flexible loan options including fixed rates on 30, 25, 20, and 15-year term loans. 5-year adjustable-rate mortgages are also available.

In addition to these flexible loan options, the benefits of FHA Loans include:

  • Credit scores as low as 580 may qualify.
  • More lenient debt-to-income qualification requirements than traditional mortgages
  • Ability to refinance up to 95% of your primary home’s value or buy your primary home with as little as 3.5% down.
  • Freedom to pay your mortgage at any time without prepayment penalties.

Additionally, if you choose a fixed-rate FHA Loan, you’ll enjoy the peace of mind that comes with knowing that your mortgage payment will not change throughout the life of the loan.

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How FHA Loans Work

When you take out an FHA Loan, though it is backed by the federal government, you’re not actually borrowing from the government. Instead, you’ll work with a private, FHA-approved lender.

Just like with a non-FHA 30 or 15-year fixed mortgage, you’ll need to make a down payment as well as regular monthly payments with an FHA Loan. You can choose from a variety of FHA loan types including 5-year adjustable-rate mortgages and fixed-rate mortgage with terms of 15, 20, 25, or 30 years.

The main differences with FHA loans relative to non-FHA loans are in the 1) qualification criteria and 2) terms of your loan, as outlined below:

1. Qualification criteria

FHA loans have less stringent qualification criteria. For example, generally, you’ll be able to qualify for an FHA loan even if you have a debt-to-income ratio that precludes you from qualifying for a non-FHA loan.

2. Terms of your loan

FHA loans are capped at a maximum amount that the FHA adjusts each year depending on the cost of living in your area. For example, in higher priced coastal areas such as Huntington Beach, FHA limits are set in excess of $700,000. In low-priced areas, such as the midwestern United States, you’ll find FHA limits as low as $200,000.

It’s also important to note that on an FHA loan, regardless of the exact type, you will always need to pay private mortgage insurance. The cost of that insurance will be added to your monthly payments.