Still, there are many common misconceptions that may keep homebuyers from considering FHA financing. Here are some of the most common myths and the reason it actually could work for you.
#1: FHA is for people with bad credit.
The Federal Housing Administration (FHA) was established in 1934 to make homeownership more affordable. However, a satisfactory credit history is required for FHA financing. But lack of a traditional credit history doesn’t have to disqualify a buyer; FHA permits the use of non-traditional credit reports and alternative credit to establish a satisfactory history.
#2: FHA is only for first-time buyers.
FHA is beneficial for first-time buyers. Approximately 50 percent of all FHA purchases are to first-time buyers. However, FHA financing is available to anyone who meets the underwriting qualifications and it may be the key for move-up buyers as well as those purchasing their first home.
#3: FHA loans take too long and too much paperwork is involved.
At one time, this may have been the case, but no more. Recent changes have consolidated the forms and processing time required for FHA loans.
#4: FHA loans aren’t flexible enough.
FHA financing provides much flexibility. It permits the buyer to use a gift of 100 percent from an acceptable donor, or a grant from a qualified non-profit government agency. It allows sellers to provide contributions for closing costs, origination fees and discount points up to 6 percent of the sales price.
#5: FHA’s upfront Mortgage Insurance Premium (MIP) is too high.
As of October 4th, 2010, the Upfront Mortgage Insurance Premium is 1.00%, which decreased from 1.5%––another example of FHA becoming a more reasonable way to finance a home.
#6: FHA requires too many insignificant repairs.
FHA does require a property to be in good condition, and recently initiated a home inspection option to protect a purchaser’s investment by ensuring that the property is safe. Buyers purchasing FHA homes gain a certain level of assurance that the home meets the minimum property standards. Plus, many sellers feel more comfortable about the upcoming sale of their home when armed with a passing inspection.