Nowadays saving for a 20% down payment is hard, probably even feels impossible to some of us. FHA gives us the opportunity to buy a home with only 3.5% down and you are if needed you can get down payment assistance or gift funds for the 3.5%. FHA also allows a lower credit score, 640 is the magic number for most investors.
How is FHA able to do this?
Remember the previous posts, Part I & II? Upfront Mortgage Insurance Premium (UFMIP) & Monthly Mortgage Insurance (MIP), these premiums help secure the FHA loan incase the mortgage would go into default. This in return allows for a lower down payment.
There are lenders who advise against getting an FHA mortgage, mainly because of the monthly mortgage insurance. This surprises me because yes, it does increase your monthly mortgage payment BUT it is what allows you to purchase the home to begin with. And quite honestly who stays in the same mortgage for the life of the loan (average 30 yrs)? Almost every homeowner will refinance at some point because they are lowering their rate but also will have enough equity which will allow them to do a conventional loan removing their MI.
FHA has brought the dream of home ownership to many Americans and will continue to do so. Learn more about FHA loans here.