January 18th, 2017 7:22 AM by Jackie A. Graves, President
FHA loans provide great assistance to many first time home buyers
by offering mortgage loans with lower down payments. While this is a benefit
for many people, recent changes in policy may have put the loans just out of
reach for some would-be homeowners with questionable credit history.
For those interested in applying for an FHA loan, applicants are
now required to have a minimum FICO score of 580 to qualify for the low down
payment advantage, which is currently at around 3.5 percent.
If your credit score is below 580, however, you aren't necessarily
excluded from FHA loan eligibility. Applicants with lower credit scores will
have to put down a 10 percent down payment if they want to qualify for a loan.
So if you're planning to buy a house, and your credit score
doesn't meet the minimum, you should weigh the advantages and disadvantages of
putting down a larger down payment or using those funds to try and improve your
credit score first.
The reason why FHA loans are so popular is because borrowers that
use them are able to take advantage of benefits and protections unavailable
with most traditional mortgage loans. Loans through the FHA are insured by the
agency, so lenders are more lenient. Here are a few benefits you can enjoy with
an FHA loan:
Easier to Qualify
While most loans exclude
applicants with questionable credit history and low credit scores, the FHA
makes loans available with lower requirements so its easier for you to qualify.
Competitive Interest Rates
You've heard the horror
stories of subprime borrowers who couldn't keep up with their mortgage interest
rates. Well, FHA loans usually offer lower interest rates to help homeowners
afford housing payments.
In addition to lower
interest rates, you can also enjoy lower costs on other fees like closing costs,
mortgage insurance and others.
Bankruptcy / Foreclosure
Just because you've filed
for bankruptcy or suffered a foreclosure in the past few years doesn't mean
you're excluded from qualifying for an FHA loan. As long as you meet other
requirements that satisfy the FHA, such as re-establishment of good credit,
solid payment history, etc., you can still qualify.
The FHA usually requires
two lines of credit for qualifying applicants. If you don't have a sufficient
credit history, you can try to qualify through a substitute form.
For many home buyers, using an FHA loan can really make the
difference between owning your dream house comfortably or turning it into a
financial nightmare. The FHA provides a wealth of benefits for applicants that
qualify, so make sure you're making full use of them.
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