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February 23, 2017

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Current market conditions, from rising interest rates to tightening housing inventories, in addition to existing financial obligations may make millennials feel like they can’t become homeowners. But millennials shouldn’t simply give up on their ambitions to eventually buy a home.

To become a homeowner, millennials should consider a loan backed by the Federal Housing Authority.

Why take out an FHA loan?

Millennials should consider taking out a mortgage backed by the Federal Housing Authority because the lending requirements are less strict than conventional mortgages.

Current trends indicate FHA loans are growing in popularity among millennials. National Mortgage News stated 41 percent of millennial women homebuyers borrowed through an FHA mortgage, as did 38 percent of millennial men.

One reason millennials are gravitating toward FHA loans? They don’t need to save as much money for a down payment. Bankrate stated some buyers are able to buy a home with a 3.5 percent down payment with an FHA mortgage. However, a lower down payment comes with a trade off as buyers have to pay an upfront mortgage insurance premium.

The second reason millennials are borrowing FHA mortgages: a lower credit score requirement. A study from TransUnion revealed nearly 43 percent of millennials have a subprime credit score (below 600). Even with a less-than-ideal credit score, a millennial may still be able to buy a home with an FHA mortgage. Millennials with above average credit scores, typically in the 750 range, can also take advantage of FHA mortgage benefits.

Millennials struggling to get approved for a conventional mortgage should consider an FHA loan. With greater flexibility and less stringent requirements, FHA loans are an appealing mortgage option for young prospective homebuyers.

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