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Discover the Incredible Benefits of FHA Loans
If you’re looking to buy a home but don’t have the traditional 20% down payment, you may be wondering if there are loans that can help you with your purchase. The answer is yes! One of the best options on the market is the FHA loan. This type of loan is insured by the Federal Housing Administration, allowing borrowers to put down as little as 3.5% of the purchase price and making it an ideal choice for first-time homebuyers. If you’re thinking about applying for a Washington FHA mortgage, make sure to contact LBC Mortgage for a free consultation.
How Do Washington FHA Loans Work?
The FHA was created in 1934 and its purpose was to provide lenders with insurance on loans made to borrowers with a down payment of 50%. Later on, the down payment was reduced to as little as 3.5%. This allowed more Americans to buy homes, which helped to spur economic growth. The program was eventually expanded to allow for 30-year terms, making it more affordable for borrowers. In recent years, the FHA has been increasingly used by first-time homebuyers and continues to be an important source of lending for renters looking to buy a home.
FHA loans are available for both purchase and refinance transactions. Since the FHA is a government agency, there are income and credit requirements that must be met. So, to qualify for an FHA loan, you must have lived in your home for at least a year as your primary residence. There are also some more requirements to be met:
- Be a U.S. citizen or legal permanent resident,
- Have a valid Social Security number,
- Have steady employment and credit history.
- You will also need to provide proof of income, asset, and employment information.
FHA Mortgage Loan Benefits
FHA loans offer several benefits that can be extremely helpful for borrowers. Here are the most essential ones to consider:
1. Low down payment
Borrowers can put as little as 3.5% down on a home making it much easier to save up for a purchase.
2. Flexible credit requirements
Another benefit is that Washington FHA loans have flexible credit requirements. It means that borrowers with credit as low as 500 may still qualify for a loan.
3. Low-interest rates
FHA loans offer lower interest rates than other types of loans, which can save borrowers a significant amount of money over the life of the loan.
4. No prepayment penalties
Many loans come with prepayment penalties, which can add up if you decide to pay off your loan early. However, FHA loans do not have prepayment penalties, so borrowers can save even more money by paying off their loans early.
5. Reduced closing costs
FHA closing costs can range from 2% to 6% of the cost of your property, but borrowers often benefit from reduced closing costs. Some lenders offer discounts on closing costs for FHA loans, so compare offers before selecting a lender.
FHA Loan VS. Conventional Loan
There are several important differences between FHA loans and bank statement loans in Washington. Perhaps the most significant difference is that FHA loans are backed by the federal government, while conventional loans are not. This means that if a borrower defaults on an FHA loan, the lender is protected against loss by the government. In contrast, if a borrower defaults on a Non-Qm loan, the lender is not protected against loss and may suffer significant financial damage.
Another key difference is the level of scrutiny that each type of loan undergoes. FHA loans are subject to much more stringent underwriting standards than conventional loans, meaning that borrowers must meet very specific criteria to qualify.
Credit score requirement is another factor that differentiates an FHA loan from a conventional one. Conventional mortgages typically require a minimum credit score of 620, but if your score is lower, you may still qualify for an FHA loan. FHA loans are more lenient than conventional ones, and only require a credit score of 580 to put down a 3.5% down payment. However, if your credit score is below 580, you’ll need to put down at least 10%.
Regardless of what type of loan you’re looking for, it’s important to plan your mortgage journey beforehand. By doing so, you’ll increase your chances of getting approved for the loan that’s right for you.
More Reasons to Choose FHA Loans
Government-Backed Security
FHA loans are backed by the Federal Housing Administration, providing a level of security and confidence for both lenders and borrowers. This government backing means that lenders are more willing to offer favorable terms, knowing that the risk is mitigated. For borrowers, this translates to a more straightforward path to homeownership, with less stringent requirements compared to conventional loans. The backing of the FHA also means that there is an added layer of protection for borrowers, ensuring that they are getting a fair deal and that the terms of the loan are reasonable and transparent.
Housing Market Adaptability
Washington's housing market is diverse and dynamic, with a range of property types and price points. FHA loans are adaptable to various housing scenarios, whether you're looking to buy a single-family home, a condominium, or a multi-family property. This adaptability makes FHA loans a versatile option for a wide range of homebuyers. Whether you're looking to settle in a bustling city like Seattle or prefer the tranquility of a smaller town, FHA loans can be tailored to meet your needs. This flexibility is a significant advantage in a state where the housing market can vary greatly from one region to another.
Financial Flexibility for Borrowers
FHA loans allow for higher debt-to-income ratios compared to conventional loans. This means that borrowers can qualify for a loan even if they have existing debts, such as student loans or car payments. This financial flexibility can be crucial for younger buyers or those with significant debt obligations. It allows more people to qualify for a mortgage and take the first step towards homeownership. This flexibility is particularly important in today's economic climate, where many individuals carry significant debt but still have the financial capability to manage a mortgage responsibly.
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Apply For an FHA Loan in Washington
If you’re thinking about buying a home in Washington, consider FHA loans. At LBC Mortgage, we’re experts in FHA loans and we’ll help you determine if this program is right for you. Our Washington mortgage broker will guide you through the entire process and answer any questions. So if you’re ready to take the first step toward homeownership, give us a call today!