What Are FHA Home Loans
Home ownership is a target that can be challenging to shoot for. Granted that money doesn’t come easy and the economy isn’t generous to everyone, many times home ownership can remain to be a dream. Thankfully, FHA mortgages are here to make it easier. With little down payment, lenient credit standards, and competitive rates, FHA mortgages are intended to be accessible to first-time home buyers and even repeat purchasers who find it difficult to obtain homes through conventional loans.
Applicants may submit their FHA mortgage applications to private lending companies that, in turn, process these applications to be insured by the Federal Housing Administration (FHA).
The federal government insures FHA loans, ultimately under the authority of the Department of Housing and Urban Development (HUD). To be clear, the FHA doesn’t extend loans themselves, but merely back these mortgages up to be funded by private lenders or traditional banks. These financial companies are the ones in charge of accommodating these loan applications from start to finish.
What Makes FHA Loans Pleasant to the Average Income Earner?
For beginners, down payments can be as little as 3.5%. Compared to a conventional loan’s 5% to 20%, the FHA already stands out tremendously. While many lenders only accommodate applicants whose credit scores are anywhere in 700 range, the FHA can go even as low as 500, provided other qualifications be met. Home buyers whose FICO scores are between 500 to 579 will have to come up with a 10% down payment and satisfy other qualifying factors. Still, this may prove to be a lot cheaper compared to conventional mortgages.
Home buyers who have low FICO scores will get much lower rates than they would have in conventional loans through Freddie Mac. That is if they even qualify for a conventional loan. Conforming-conventional loans require a higher credit standard as compared to FHA loans. The minimum mid-FICO score requirement for conventional loans is at least 620.
FHA Rehab Loans
What’s more, for those who need additional funding for home rehabilitation and reconstruction, an FHA 203K is available. If the property that you’re looking to buy needs rehab, you can add the cost of restoration to the total loan amount of the mortgage. It incorporates the two loans into one.
Other Things to Consider When Applying for an FHA Mortgage
Furthermore, before borrowers submit their FHA applications, they should make sure they have sufficient savings to put in for down payments and closing costs.
Many commercial banks and other mortgage lenders offer FHA loan. At the same time, their qualification requirements, fees, and turn times will vary significantly, so it’s vital to shop around wisely for lenders to see where and who can give you the best deal.
Here is a short checklist of what will be required when applying for an FHA loan:
- Employment in the last two years
- A 30-day paycheck stubs
- Recent two months bank statements
- Complete information for other real estates you own
- Last two years tax returns, W2s and 1099s
For more FHA home application concerns and questions, click the link to be routed to the leading FHA mortgage lender!