Do you wish to finally settle in a home of your own but do not want to go through the rigorous process of getting a conventional loan? If your answer is Yes, then the FHA home loan could be the first-time home buyer loan you’ve long waited for. Although, it’s for everyone – not just first-time home buyers.
Quick Introduction to FHA Loans
FHA loans are insured by the Federal Housing Administration or FHA and were initially designed to make homeownership readily available to aspiring homeowners who have difficulty meeting the conventional loan requirements.
Generally, FHA loans have remarkably lowered eligibility requirements compared to conventional loans. They require no minimum income, making them even more attractive to individuals in the lower-income bracket.
FHA Loans are perfect for people who:
- Are you in the lower-income bracket
- Have less-than-stellar credit scores
- Cannot afford the high down payment rate of most regular loans
- Have a debt-to-income ratio of not greater than 31%
- Are you looking for a home loan with a less rigorous approval process
FHA-approved lenders around the country originate FHA loans. However, lenders can afford to offer them at more accessible standards because the government guarantees loans under the program. Suppose the borrower defaults on the payments and the FHA mortgage is foreclosed. In that case, the U.S Department of Housing and Urban Development (HUD) will cover the balance and assume ownership of the property.
A Closer Look at FHA-backed Mortgages
Compared to a conventional loan, where borrowers must have a minimum credit score of at least 620, an FHA loan requires borrowers to have a credit score of only 580 to qualify for the 3.5% down payment rate. Even if your credit score is between 500-579, you may still get approved for an FHA mortgage if you agree to pay a down payment of at least 10%.
Aside from the down payment, another attractive feature of the FHA loan is that it allows seller concessions. This means the seller can cover the loan’s closing costs in part or entirely. Borrowers can take further advantage of their FHA loan by availing of down payment assistance programs by the government.
However, the lower down payment and lenient qualification process for FHA loans come at a cost. One of the most significant drawbacks of this mortgage program is that it comes with two mortgage insurance premiums. The first one has to be paid up-front, while the other is charged on top of the monthly payments and lasts for the life of the loan.
In addition to mortgage insurance fees, there will be closing costs to watch out for, but that should not be much of a problem as the FHA allows seller concessions, and most mortgage lenders are now very competitive when it comes to their services.
Should you go for it?
Overall, the FHA home loan is an interesting alternative to the conventional loan. However, there is more to the FHA mortgage than what is mentioned in this article. To learn more about the program and find out if it’s the best fit for you, contact an FHA-approved lender in your area or qualify with them online.
