For home buyers who are facing challenges and barriers, FHA loans provide mortgage insurance to make buying a home more accessible. These loans are a type of federal assistance. FHA loans allow home buyers to finance homes with down payments as low as 3.5%. These types of loans are often very popular with first time home buyers that may need a little more help if they don’t have enough money in their pockets.
The reason that FHA loans are popular for first time home buyers or low-to-moderate-income borrowers is because they require a lower minimum down payment, as low as 3.5%, and lower credit scores than conventional loans.
As of 2021, the requirements for FHA loans are to have a greater than 580 credit score, a down payment of 3.5%, a debit/income ratio of less than 43%, and mortgage insurance. If you have a credit score less than 580 but greater than 500, the down payment is 10%. Proof of steady income and employment are also required to obtain FHA loans.
With the strong nature of a seller’s market that we are in currently, homeowners are prioritizing other offers over others for an easy sale. Buyers are offering all cash offers, paying way above asking price, and waiving contingencies to have the best chances of getting the house in this very competitive market.
The reason why FHA loans might be phased out right now is because FHA appraisals tend to be stricter about home inspections when it comes to health and safety concerns. The trends of the market right now are sellers looking for buyers with more conventional mortgages because they tend to care more about the price, they can sell their house for and knowing the sale of the home will close.
In a seller’s market, the sellers have a big advantage when it comes to deciding who they are willing to sell their house to. Especially when the market is as competitive as it is right now, sellers want the easiest offer and the best price.
There are many contingencies’ buyers are waiving right now to help ensure that their offer gets approved such as waiving the inspection and appraisal contingencies. If a seller has an offer with contingencies waived or an all-cash offer, there is less for them to do so it’s the easiest option.
In this market, buyers are trying to steer clear of FHA loans and go with conventional loans because that might show they will actually go through with the sale and not back out.
In the meantime, buyers should improve their financial profile so when the time comes to getting a loan, they are able to get whatever loan they want