With highly competitive housing markets like the ones we’re seeing in the northeast, especially in southern Maine and seacoast New Hampshire, homebuyers need to be creative and resourceful.
One of the most helpful options for prospective homeowners is a loan from the Federal Housing Administration. More commonly known as FHA loans, these programs are designed to assist borrowers by offering more lenient requirements in the loan process.
From lower to no down payment requirements, lower interest rates, financial assistance and matching programs and credit score leniencies, FHA loans can be a game-changer for many homebuyers.
From first-time buyers to full-time investors, from newly-minted agents to experienced brokers, FHA loans are well known in the real estate world. But with all that awareness and common knowledge comes many myths, misnomers and misunderstandings about them.
So I thought I’d take some time this month to talk about FHA loans and dispel some common misconceptions about what they are, who might benefit from them and why you shouldn’t dismiss them.
I think understanding FHA programs is important not only for homebuyers who might benefit from utilizing an FHA loan but for sellers too, who might be dissuaded by offers from these buyers based on incorrect information.
One of the top misconceptions about FHA loans is that these programs are only for buyers with poor credit. It’s true that applicants with credit scores as low as 500 can apply for FHA loans, but data shows the average credit score for applicants is 683, according to Ellie Mae.
In fact, an overwhelming majority (80%) have credit scores north of 600. Many homebuyers from all different income brackets are utilizing FHA loans.
Another misconception is that FHA loans are exclusively for first-time buyers. Again, while these loans are a great option for first-time buyers, they can be used by repeat buyers too.
As a homebuyer, whether you’re selling your current home and looking for a new home, or you’re trying to get out of the rental grind, it’s important to go over all your financing options to find the best loan for you – FHA or other.
One of my biggest peeves when it comes to FHA myths is the false notion that these loans take longer to close than conventional home loans. There’s no data to suggest this is true. Available data shows no difference at all in the type of loan and the time needed to close.
Factors like clients’ needs and inspection periods play a much larger role in determining the length of time to close than the type of financing involved in the transaction.
This next myth is for any clients interested in multi-family properties. A lot of people believe FHA loans can only be used for single-family homes. FHA loans have broad applicability and can be used for townhomes, manufactured homes and multi-family properties with up to four units.
Of course, for homebuyers it’s important to know that the FHA does require the applicant to use one of the units as their primary residence. Still, this is another great, creative option for homebuyers to gain leverage in a competitive housing market.
A final misconception about FHA loans is that they have an income limit. This one is completely false. These loans do not have any minimum or maximum income limit.
For home buyers due diligence is important. Getting the facts right and gathering up as much information as possible when it comes to financing options is essential to the process of buying real estate. FHA loans can be great, viable options for many home buyers. But they’re not for everyone, either.
Talking to a trusted mortgage person, your trusted and experienced broker, and taking time to research all the programs and financing options available to you ensures you’re maximizing your spending power, which will put you in the best possible position to find your dream home!
FHA loans are often a great option for buyers, especially first-time buyers and buyers who can’t afford larger down payments. And keep in mind that there will likely be opportunities for you as a homeowner to refinance your mortgage into a conventional loan.
If you have any questions about FHA loans, the home buying process, or real estate in general, feel free to give me a shout any time!
