The most popular FHA home loan program for a first time home
buyer is by far is the 203(b). This is your standard fixed rate
loan for 1-4 family owner occupied houses and only requires a
minimum of 3.5% from the borrower. This loan also permits 100%
of their money needed to close to be a gift from a relative,
non-profit organization, or government agency.
The main advantage to a FHA home loan is that the credit
criteria for a first time borrower are not as strict as
Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC).
Someone who may have had a few credit problems or no traditional
credit should not have a problem obtaining FHA financing. Also,
FHA home loans are assumable, allowing a person to take over the
mortgage without the additional cost of obtaining a new loan. In
addition, the seller or lender must pay for part of the
"traditional" closing costs (called non-allowable costs) while a
borrower's allowable costs can partially be wrapped into the
loan. The monthly mortgage insurance premium is cheaper for an
FHA loan verses a conventional loan with 3% down. Finally, FHA
loans may may require less income to qualify.