January 13th, 2020 9:38 AM by Jackie A. Graves, President
Financing a home can be an expensive journey that many prospective
homebuyers believe is out of reach. However, obtaining an FHA loan can help make
homeownership within reach for many individuals. Some buyers may not know how
to get an FHA loan or how to qualify for an FHA loan. Let’s dive into the ins
and outs of these loans, plus the awesome advantages of an FHA loan and some
An FHA loan
is a mortgage loan that is funded through an FHA-approved lender, while insured
by the Federal Housing Authority. This loan is ideal for those who have a
low-to-moderate income, especially first-time homebuyers, as well as those who
do not have sufficient funds for a down payment.
loan, buyers can put as little as 3.5% down on their home as long as they meet
certain qualifications, such as having a credit score of at least 580. In
addition to having a low down payment, the funds for the down payment can
either come from the borrower’s savings, gift funds or a down payment grant.
This provides more flexible options for buyers on how they will obtain the
funds for the down payment.
loan is funded through an FHA-approved lender, the FHA doesn’t issue this loan
directly. The mortgage is funded through a typical lender, like a bank or
credit union, but is insured by the FHA. This can protect the lender in case a
borrower defaults on a loan. Because the FHA protects the lender’s margins in
this way, the result is a lower credit score minimum and a lower down payment
than a standard mortgage loan.
for an FHA loan is a bit different than a standard mortgage. To restate,
borrowers only need to put 3.5% of the purchase price down as long as they have
at least a 580 credit score. A credit score of 580 qualifies the borrower for
the program. That doesn’t mean that anyone with a credit score lower than that
will not qualify, however. In fact, borrowers with a credit score below 580 can
still potentially qualify; they just need 10% down. It is important to note
that these requirements are FHA requirements, but lender requirements may
differ. The actual bank or credit union funding the loan may have different
qualification standards and buyers should confirm the lender requirements as
Buyers need to meet the debt-to-income ratio requirements set by
the lender in order to be approved. If a borrower has too much debt, the lender
reserves the right to decline their application. In addition to having
sufficient funds for the loan, borrowers also need to be aware of the FHA mortgage limits to prevent
looking at homes outside of the
maximum loan amount. All buyers should speak with their desired lender for
additional information because it will vary from lender to lender; they can
even talk to their lender about a pre-approval.
offers a multitude of loans, so borrowers can choose from different options to
find the one that best fits their needs.
FHA loans have a lower down payment than conventional loans, they do require a
lot of fees to be paid before funding. A borrower should expect to pay about 3%
to 5% of the purchase price for closing costs, plus any origination, title, and
private mortgage insurance (PMI) fees.
There are a
few benefits of FHA loans that make them extremely appealing to borrowers.
First off, the low down payment requirement is a popular reason, especially
among first-time home buyers. With such a low requirement, just 3.5%, it can
make the initial home purchase more affordable, especially because buyers can
have the funds for their down payment funded from savings, gifts or down
payment assistance grants. Additionally, because the loan is backed by the FHA,
there are lower credit requirements needed. This is beneficial for those who
have a nontraditional credit history or a low credit score.
advantages of an FHA loan come disadvantages that may be deal-breakers for some
people in the market for a new home. For starters, FHA loans have a couple of
different insurance requirements. Borrowers must pay an up-front mortgage
insurance fee of about 1.75% of the purchase price. Luckily, borrowers may have
the option to add this into their loan balance if that better suits their
financial needs, but they will be paying more over time. Additionally, there is
a monthly mortgage insurance premium (MIP) that, unlike private mortgage
insurance (PMI), cannot be canceled once the homeowner builds up more than 20%
of the equity in their home. The MIP must be paid throughout the life of the
also restrictions on homes that can be purchased with an FHA loan. It is
extremely important that the buyer determines if the area of homes they are
looking at meets all of the qualifications. This will help reduce the risk of
falling in love with a home that they cannot get through the program.
FHA loans can be a great opportunity to make homeownership within
reach for some borrowers. Those in the market for a new home should examine
their financial situation and check with a local bank or credit union to see if
they meet the requirements to qualify for this program. At the end of the day,
qualifying for an FHA loan and becoming a homeowner may be easier than you
Source: To view the original article click here