Just in case you don’t know this yet, an FHA home loan is a type of mortgage insured by the FHA or the Federal Housing Administration. It’s one of the most popular home mortgages nowadays, especially among first time home buyers, thanks to its lower down payment and credit score requirements.
The FHA program was originally created as a response to the rash defaults and foreclosures that took place in the 1930s. With the government and the FHA providing private mortgage lenders a guarantee, home loans have become affordable and more accessible to the public; thus, stimulating the housing market then until today.
FHA Loan Requirements
Borrowers with a credit score of 580 or higher can take advantage of the 3.5% down payment, which is substantially lower than the 20% required for traditional home loans. Those with credit scores between 500 – 579, however, can still avail of the loan but have to pay a higher percentage – at least 10% down.
Although they’re easily the most important, the credit score and down payment are just two of the requirements you need to comply with. Other requirements set by the Federal Housing Administration to qualify for FHA loan include
- Steady employment and source of income (at least two years with your current employer)
- Valid Social Security number
- Lawful U.S residency
- Front-end ratio not more than 31% of the borrower’s gross income
- Back-end ratio not more than 43% of the borrower’s gross income
- At least two years out of bankruptcy
- The property must meet the minimum appraisal standards
Benefits of FHA Loans
An FHA-insured loan is one of the easiest mortgage loans for people with less-than-ideal credit to qualify for. The 3.5% down payment needed for maximum financing is also one of the cheapest out there.
Those who find themselves repeatedly rejected for conventional loans because of their credit score or those who can’t afford the 20% down payment should look into whether an FHA home loan is the right fit for them.
Another great thing about FHA loans is that they are assumable. If for whatever reason, you decide to sell your home, the buyer can assume the loan.
For first-time homebuyers, what makes FHA loans very appealing are the state and government grants and discounts that they can avail to make the down payment and closing costs lighter on the pocket.
If you have had bad credit in the past, went through a bankruptcy, or experienced foreclosure, you may still have a shot at homeownership through an FHA mortgage.
Applying for An FHA Loan
If you think that the FHA loan is the right one for you, the first thing you need to do is search for a reputable FHA-approved lender in your area. You can also look for mortgage companies and shop for quotes online until you find the best one for both your needs and budget.
One important thing to remember when trying to find a lender: have several companies to choose from. While all FHA loans are insured by the government, different lenders have different standards. The more choices you have, the higher your chance of getting a good deal.