FHA loans are a popular home loan choice for borrowers. Qualifying standards tend to be more flexible and down-payment requirements are lower when compared to other home loan options.
Read on to see what makes an FHA loan an attractive mortgage option and learn how you can take advantage of this home financing opportunity.
About FHA Loans
FHA loans are mortgages insured by the Federal Housing Administration. With an FHA loan, borrowers pay mortgage insurance, which protects the lender in case the borrower defaults on the mortgage.
Why are FHA Loans popular?
Since the loan is insured, FHA loans are often offered at a lower interest rate and have qualification requirements that are less strict.
Less-than-perfect credit is ok
The minimum credit score needed for an FHA loan depends on the type of loan you need. For example, to get a mortgage with a down payment as low as 3.5 percent, you would need a credit score of at least 580. If your credit score ranges between 500 and 579, your minimum down payment will be about 10 percent.
Credit scores that are under 500 may be ineligible for FHA loans, but it does not disqualify you entirely. FHA mortgages have special conditions, such as "nontraditional credit history or insufficient credit," that allows for applicants to still qualify if they meet certain requirements.
Call our office to learn more about these special conditions for FHA qualification and a personalized down-payment quote.
Minimum down payment can be as low as 3.5 percent
For many borrowers, the required down payment can be as little as 3.5 percent of the purchase price of the home. What's more, you can also use your savings to make the down payment! Other allowed sources of cash for the down payment include gifted monies from a family member or even a grant from a down-payment assistance program.
Your closing costs may be covered
The FHA permits home sellers, builders, and even lenders to pay some of your closing costs. These costs can include the appraisal, your credit report, or title expenses. The interest rate on the mortgage may be higher if the lender pays the closing costs, however, the additional cost may still be advantageous in the long run.
Our office will assist you in determining if including the closing costs would benefit you before.
Mortgage professionals must be FHA-approved
This is fact often creates confusion: FHA is not the lender, but rather the insurer. To get an FHA loan, borrowers apply through an FHA-approved mortgage professional or lender, and not directly through FHA.
Also, interest rates and fees may still vary (even on the same FHA loan), which allows us to remain competitive by offering you the best overall deal.
Borrowing for repairs is allowed
There's a special loan product offered by the FHA that lets you borrow extra cash to make repairs to your home. The 203(k) has the benefit that the loan amount isn't based on the current appraised value of the home, but rather on the projected value after the repairs are done. Also known as a "streamlined" 203(k), it lets you finance up to $35,000 for nonstructural repairs, for projects such as painting and replacing cabinets.
Financial hardship relief
FHA insurance should not be considered an easy out of paying the monthly mortgage, but there are special circumstances that can allow for temporary relief. When you have an FHA-insured loan, and you experience a serious financial hardship or are struggling to make payments, you may be eligible for a temporary period of forbearance, a modification on the loan that would lower the interest rate or even an extended payback period. Call our office to learn more.
Have more questions about buying a home or what mortgage option is best for you? Call us for a no-obligation consultation!