FHA Home Loans Refinancing

Why First Time Home Buyers Choose FHA for Financing

12.04.12

The Federal Housing Administration was created during the Great Depression to help first time home buyers get better access to home loan programs. The primary goal of FHA was to help renters become homeowners by extending fair loans to everyone. FHA mortgages are available to consumers that a debt-to-income ratio between 30 and 43% and who have marginal to good credit. One someone becomes an FHA customer they will have the option to refinance it if the market pricing improves under the FHA streamline program.

The FHA home loan program accepts lower credit scores than conventional loan programs from Fannie Mae or Freddie Mac. The direct endorsed FHA underwriters have the ability to make exceptions on home purchase and mortgage refinance programs. There are many instances when an applicant has compensating factors that may help them overcome some of the lending restrictions. First time home buyers still select FHA loan programs more often than any other program because of the low down-payments and forgiving credit guidelines. With the minimum credit score only at 500, first time home buyers with poor credit are very attracted to FHA mortgages. FHA continues to offer the most opportunities and the path of least resistance for first time homebuyer loans. And new borrowers love the fact the FHA does not allows lenders to charge pre-payment penalties for refinancing or early payoff. The 30-year FHA rates remain very attractive in the 3.25% to 3.5% range for qualified applicants.

FHA borrowers must pay mortgage insurance monthly until they acquire 20% equity in their property but it remains a realistic 1st time home buyer loan. Conventional lenders typically require that borrower comes up with 20% down-payment. In some cases Fannie and Freddie will approve a purchase loan for a first time home buyer with a 10% down-payment and mortgage insurance, but the applicant will need high credit scores in the 720+ range in most cases.

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