What kind of borrower will do best with FHA mortgage requirements?
Answer:FHA mortgage requirements are likely to benefit borrowers who cover average to high sub-prime criteria.
That is, a borrower that has 550 credit and above, has 40% debt to income ratio, is not buying a luxurious home, can put some cash down (3 to 5 percent), and wants stability guaranteed with the FHA insurance is likely to benefit the most from FHA insured loans.
However, few sub-prime borrowers are aware that they would most probably satisfy the FHA mortgage requirements and is more likely to do better with an FHA sponsored mortgage, rather than with a basic sub-prime mortgage loan. It is the subprime lending niche that started the crisis, due to the high level of wannabe homeowners, not educated enough about risks and responsibilities of mortgage loans.
Another advantage of an FHA mortgage and the reason FHA requirements are worth it, is that prepayment penalties are nonexistent and rates will be low. Compared to subprime loans which are mostly ARMs with high margins and costly prepayment penalties, FHA mortgage loans seem to be more reasonable.
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