FHA Loans Pt. 1 – Why are they so common???

Mortgage concept by money house from the coins

FHA loans are one of the most popular loan options for homebuyers (not just First-Time Buyers). And this isn’t anything new, as the FHA Loan Program has been at the forefront since its introduction back in 1934. Why is the program so popular with borrowers and lenders?

Well, lenders like the program because it carries a protection to the lender. As long as the lender approved the loan using proper FHA protocol, should the loan ever go into default, the lender is compensated for the loss. But for homebuyers, there are plenty of reasons why it’s an excellent choice.

Many homebuyers (NOT JUST FIRST-TIME BUYERS) know that FHA only requires 3.5% down-payment. But, other than the down-payment there are a few other significant reasons homebuyers use FHA.

Click the link to see if you qualify – Pre-Qualify for an FHA Loan!

Simply put, FHA loans are easier to qualify for. A Common Question I am asked, is how do I qualify for FHA loan but not a Conventional Loan? So, let’s pull back the curtains just a little to see why FHA loans are easier to qualify for compared to conventional loans.

FHA has a higher acceptable Debt-to-Income Ratio than a Conventional Loan. Typically FHA will accept a higher debt-to-income ratio (DTI). DTI is your total monthly debt obligations divided by your total monthly income. FHA will typically allow Debt-to-Income up to 57% with Automated Underwriting Approval (DU) vs. Conventional limits of 50%. Which means, FHA loans allow borrowers to qualify for MORE house.

FHA is also more lenient with average to poor credit history. First, FHA loans can be achieved with a qualifying credit score of just 500, with a larger down-payment (10%). IMPORTANT NOTE….. most lenders will require a minimum credit score of 580, along with a positive housing payment history and lower debt-to-income ratios. Second, FHA has a shorter wait period from negative credit events. The standard wait times are:

  • 7 Bankruptcy – 2 year wait period (unless documented extenuating circumstance; medical or death)
  • 13 Bankruptcy – 12 month wait period
  • Foreclosure- 3 year wait period
  • Deed-in-Lieu Short-Sale – 3 year wait period

Finally, FHA also is more lenient with collection accounts, late payments, and disputed trade lines. There are many situations that FHA borrowers can qualify without needing to payoff current collection accounts or removing disputed accounts.

If you’re not sure you can qualify for a home loan due to income or credit issues, the FHA loan might just be the answer. It is important to note – FHA Loans may also make the most financial sense for a homebuyer too.

Click the link to see if you qualify – Pre-Qualify for an FHA Loan!

Andy T

I am Originally from Chicago and moved to Denver, CO with my wife and puppers from Springfield, IL. I have been with Diamond Residential Mortgage for over 5 years, spending most of that time in the State Capital. Whether you are seasoned real estate investor or a first-time buyer, I strive to provide every client with the best service and communication possible. At Diamond Residential Mortgage, we offer a wide variety of mortgage products to make sure every client gets a mortgage that meets their specific needs. I love the one-on-one philosophy and enjoy working closely with clients and other real estate professionals. Feel free to drop me any mortgage related questions.

This entry has 0 replies

Comments are closed.