Let’s break down the type of home buyer who would like to benefit from an FHA loan. In general, the FHA home buyer would like to only put 3.5% down. They may have less than perfect credit and have a higher debt-to-income ratio. What is debt to income? Debt-to-income is the total monthly debt divided by income. (add this formula to the video: DTI = home payment+monthly debt / income).
FHA has been known to qualify borrowers with up to a 55% debt-to-income. Also, rates are often lower with an FHA loan. The trade off is that FHA loans carry upfront mortgage insurance and monthly mortgage insurance while conventional loans only require monthly mortgage insurance when borrowers put less than 20% down. In summary, FHA loans are a great way for home buyers to buy a home with little money down.
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