The FHA mortgage program has been available for over 80 years but recently we have seen a surge in millennial home buyers using the program. The FHA program offers borrowers of all ages several advantages and we outline below why this old school loan program attracts new school, millennial home buyers.
More Flexible Borrower Qualification Requirements
The FHA mortgage 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. And if you are willing to make a down payment of 10%, the minimum credit score is as low as 500. Additionally, although the standard debt-to-income ratio limit for the FHA mortgage 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 minimum credit score and higher maximum debt-to-income ratio make it easier for millennials to qualify for an FHA loan, especially if they have a limited credit profile or a few dings on their credit report.
Low Down Payment
The FHA mortgage program enables homebuyers to purchase a home with a down payment as low as 3.5% as compared to the 10% – 20% down payment required by many 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 make rent payments. By reducing the down payment required to buy a home, the FHA mortgage program makes homeownership more attainable for millennial home buyers.
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 loan 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 bring down your monthly mortgage payment and potentially save you thousands of dollars in interest over the life of your loan. Fiscally responsible millennials looking to save money on their mortgage payment are attracted to the lower interest rates offered by FHA loans.
Live Wherever You Want
Some low or no down payment loan programs require the property being mortgaged to be located in a specific geographic area to qualify for certain program benefits, such as a reduced mortgage rate. The FHA mortgage 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 want.
Earn As Much Money as You Want
The FHA mortgage program does not restrict how much money borrowers can earn. Several other low or no down payment programs use a maximum income limit to determine borrower eligibility, which may reduce the number of borrowers that are eligible for the programs, especially in more expensive cities. By not applying borrower income limits, the FHA mortgage program is available to millennial home buyers of all income levels.
Given the program benefits outlined above, you can understand why FHA mortgages appeal to millennials and prospective home buyers of any generation.