Are FHA Loans Good For First Time Homebuyers? - Better Lending

Are FHA Loans Good For First Time Homebuyers?

Are FHA Loans Good For First Time Homebuyers?

What Is An FHA Loan?

Since 1934, The Federal Housing Administration has opened the door for millions of Americans to gain homeownership. Many people believe that the FHA is an actual direct lender who issues mortgages. However, this is not the case. People who want to buy a house still have to go through a lender to obtain a mortgage.

However, what makes FHA loans so attractive to banks and other lending organizations is that the federal government will guarantee the loan if the borrower defaults on their obligation.

FHA Loan Requirements

There are many advantages to taking out an FHA backed loan from a qualified lender for first time home buyers, including:


The requirements to be approved for an FHA loan are not as stringent as other mortgage types. Two years of work history is needed, but it does not have to be with the same employer. Also, people with incomes from seasonal work, commissions, or self-employment can all be eligible to receive an FHA backed loan.

Credit Scores & Debt To Income Ratios

Even if a borrower cannot qualify for a conventional loan due to a lower credit score, they still might be eligible for a mortgage-backed by the FHA. While a conventional loan requires a credit score of 620 or higher, FHA mortgages can be approved with scores as low as 580-600. Also, the FHA allows borrowers to have a debt to income ratio of up to 43%. This means that a person’s total monthly debt payments cannot exceed 43% of their monthly gross income (including their mortgage).

Attractive Interest Rates

Because FHA loans are a minimal risk to lenders, banks and other institutions are more willing to offer borrowers lower interest rates than conventional loans.

A better interest rate lowers a borrower’s monthly payment. Still, over the lifetime of the loan, a significant amount of money can be saved.

Much Lower Down Payment

Having to put a down payment on a home can be problematic for many buyers. This is especially true when some down payments are as high as 20% of the purchase price. The deposit payment on an FHA backed loan can be as low as 3.5%, depending on the borrower’s credit score. Many more borrowers can afford 3.5% down as compared to 20%.

No Early Payoff Penalty

Another attractive feature of FHA loans is that the lender will not impose a penalty should you decide to pay off your mortgage earlier than expected. Because mortgage companies gain interest income on other loan types, banks will often charge a fee for homeowners paying off their mortgage early. This kind of financial freedom is a great thing to have as it relates to long-term financial planning.

Down Payment Money As A Gift

Sometimes a family member will give a homebuyer the gift of funding their down payment for them. This is a great way to help a loved one get on the road to homeownership. While other types of loans have rules about how much of a down payment can be funded by a gift, these restrictions do not apply to FHA backed mortgages. 100% of a homebuyer’s down payment can be sourced from a gift from a family member or another approved person.

Don’t Forget Homeowners Insurance

When calculating the price of a home, many first-time buyers forget to factor in the cost of home insurance. Before buying a home, contact your insurance agent and get a quote on your prospective home. Once you have a quote, you will have a better idea of the overall cost of a mortgage payment each month.

Qualify For An FHA Loan

The team at Better Lending has helped thousands of homeowners with all of their FHA loan needs. Contact us today to see whether an FHA mortgage would be the best option for you. Learn more about why so many customers have trusted Better Lending to be their FHA lender of choice.

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