FHA home loans have quite a few advantages, with only 3.5% down down on a purchase and lower credit score requirements than traditional mortgage loans. FHA Loans are known to be among the most lenient home loan options that a buyer has to use. They are regarded as such because they are backed by Federal Housing Administration, which means it is insured to a certain limit by the government itself. The county the property is in also plays a role in financing.
You should apply for an FHA loan if:
- 1) If you're a first homebuyer, (have not owned a home in past 3 years)
- 2) or, You have a small down payment.
- 3) or, Your wish to keep monthly payments low and have a lower credit score (below 680), you have difficulty qualifying for a conventional loan.
How Does an FHA Loan Benefit Me?
There are many benefits of applying for an FHA loan. Here are some of the most significant benefits one will notice when during the application process.
- 1. Easier Qualification
Because of the backing from the government, the lender is more susceptible to make the loan work.
- 2. Lower Rates
FHA loan rates are generally much lower than conventional loans because of the insurance granted by the government.
- 3. Lower Credit Scores
Poor credit is generally why most of the people fail to qualify for conventional loans, but this isn't a problem as far as FHA loan requirements are concerned. Some programs go as low as 580
- 4. Stability
FHA loans have been here since 1934, so they are very dependable.
- 5. Protection
If times get tough in the future economically for you, FHA loans are one of the best loan products to help you keep the house.
Keeping the above-mentioned benefits in mind, applying for an FHA home loan can be a real lifesaver for people.
What Am I Required to Have?
There are certain requirements that a borrower has to fulfill in order to apply for an FHA loan.
- You shouldn't have had a bankruptcy in the past two years and should have a good credit for at least two years after filing for bankruptcy.
- No foreclosure in the last three years and good credit following those tough years
- At least three years of stable income
- A proof of payment of all bills
- Should be able to put down 3.5 % of the property's purchase price
- Should be willing to cover 2.25 % in closing costs
- Monthly payment should be around 30% of your income.
If you are able to meet the above-mentioned requirements, you can apply for an FHA loan.
Which Type of FHA Loans Are Available?
With minimal regional differences based on the county, FHA offers the following financing on their loans:
- Fixed Rate Loans
This type of loan offers home buyers a fixed monthly installment throughout the life of the mortgage. Therefore, you know the installment in advance and can arrange a budget for it.
- Adjustable Rate Loans
The ARM or Adjustable Rate Mortgage provides the flexibility to go for lower interest rates for the low initial period of time and then switch to higher market rate or the reverse process.
- Purchase-Rehab Property Loans (203K)
Sometimes it such happens that your dream house requires a lot of reworking and in such cases, fixer-upper loans come to the rescue. This specialized loan includes both the mortgage as well as repair costs.
You can pick any of the above-mentioned types of loan options for your FHA loan. That being said, if you need to find a loan program to get into a home, then starting with an FHA loan is one of the best possible options to do.