The FHA home loan program has been around for decades but recently we have seen a surge in millennial home buyers using the program. The FHA program offers borrowers of all generations multiple benefits but read on to see why this old school mortgage program offers special appeal to today’s new school, millennial home buyers.
Lower Required Down Payment
The FHA home loan program enables home buyers to purchase a home with a down payment as low as 3.5% as compared to the 10% - 20% down payment required by most standard mortgage programs. Saving money for a down payment can be one of the biggest obstacles to buying a home, especially for millennials with student loans or who struggle to pay the rent. By reducing the down payment required to buy a home, the FHA mortgage program makes home ownership more attainable for millennial buyers.
Flexible Qualification Guidelines
The FHA home loan program uses relatively flexible qualification requirements including a lower minimum required credit score and potentially higher debt-to-income ratio. The minimum credit score required to qualify for an FHA loan is 580, which is lower than most mortgage programs. Additionally, although the standard debt-to-income ratio limit for the FHA home loan program is 43%, applicants with stronger financial and credit profiles may be able to qualify for a mortgage with a debt-to-income ratio over 50%. The lower credit score requirement and higher debt-to-income ratio limit make it easier for millennials to qualify for an FHA mortgage, especially if their credit profile is not perfect.
Lower FHA Mortgage Rates
FHA mortgage rates are typically .250% - .500% lower than the interest rate for other low down payment mortgage programs. The interest rate for an FHA mortgage is lower because the program is backed by the government and borrowers are required to pay FHA mortgage insurance, which protects the lender in the event of default or foreclosure. Lower FHA mortgage rates lower your monthly mortgage payment and potentially save you thousands of dollars in interest over your mortgage. Cost-conscious millennials looking to save money anyway they can are attracted to the lower mortgage rates offered by FHA loans.
No Borrower Income Limit
The FHA home loan program does not limit how much money a borrower can earn. Several other low or no down payment programs use a maximum income limit to determine borrower eligibility, which may limit the number of borrowers that can use the programs, especially in high-cost areas. By not applying borrower income limits, the FHA home loan program is available to millennial home buyers of all income levels.
No Property Location Restrictions
Some low or no down payment mortgage programs require the property being mortgaged to be located in a specific geographic area to qualify for certain program benefits, such as a lower interest rate. The FHA home loan program does not restrict where a property is located which means that millennials can use the program in any hip and up-and-coming neighborhood they desire.
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