FHA mortgage loans are appealing to first-time homeowners. These loans are under the insurance of the U.S. Federal Housing Authority and are issued by federally qualified lenders. Generally, FHA loans can be the choice for you because they feature:
- Easier requirements compared to conventional loans
- Lower down payment
- Cannot go beyond statutory loan limits
What are FHA Loans?
FHA loan borrowers settle for mortgage insurance. This protects the lender if the borrower cannot pay for the loan. Most people get FHA loans because of their competitive interest rates. Plus, lenders usually have more flexible requirements and less stringent measures with FHA loans. The FHA is under the Department of Housing and Urban Development.
A minimum credit score for FHA loans depends on the loan you need. If you want a low down payment on a mortgage for as little as 3.5 percent then your credit score needs to be 580 or above. If your credit score goes below 580 then your down payment can go to 10 percent or more. However, if your credit score is below 500 then you won’t be eligible for an FHA loan. There are instances when the FHA will allow this in specific situations. This falls under the “nontraditional credit history or insufficient credit” category should you satisfy the requirements. You should check with your loan specialist or lender whether you qualify or not.
As mentioned, FHA loans typically ask for lower down payments that can be as little as 3.5 percent. Therefore,they are very popular. However, take note that these types of loans may have some limiting conditions. If you apply, FHA borrowers are typically allowed to use their savings for the down payment. Other ways to arrange the down payment include a cash gift from a family member or a local or state grant meant for down payment assistance.
The FHA permits home builders, sellers and lenders to cover the closing costs of the borrower. These costs include title expenses, a credit report and an appraisal. For example, builders can offer to settle the closing costs if the borrower will buy the new home.
There are many things that go into an FHA loan. Depending on your situation, the terms can vary. It is best to work with loan specialists like Columbus OH Mortgage Broker to understand what can work best with your situation. Also, make sure you that are ready to commit to the loan. It may only require a low down payment but repaying the loan should be a top concern. Understand your finances well enough to know whether you can afford a loan or not.