March 16th, 2017 5:08 AM by Jackie A. Graves, President
Lower credit score requirements make
FHA-backed loans an accessible option
Mortgages insured by the Federal
Housing Authority are a good option for first-time
homebuyers with imperfect credit, as FHA loans enable you to purchase a
home without such strict financial restrictions.
However, there is a caveat: this mortgage insurance (and paying
the premiums lasts for the
life of the loan) can be comparatively more expensive.
Here's how the FHA works. All loans are sourced through private
lenders and the loans aren’t paid out by the government. The government instead
insures the loan so there is less risk for the lender involved. With this
backing, lenders are more likely to approve borrowers with less-than-stellar
“FHA loans are used from homebuyers of all walks of life,” said
Brian Decker, vice president of mortgage lending at Guaranteed Rate. “Everyone from first-time homebuyers
with average credit scores that want to take advantage of lower interest rates
and reduced PMI rates versus their options with conventional financing to
non-first-time homebuyers that have either limited funds for a down payment,
credit issues or need the more relaxed underwriting guidelines offered by FHA.”
Millennials are seeing the FHA-backed loans as an increasingly
popular option. According to Ellie
Tracker, 41% of closed loans to women among 2016 Millennial homebuyers were
FHA-backed, as opposed to conventional, VA, or other loan types. In
that timeframe, 38% of men preferred FHA backing.
For the inexperienced, the requirements may seem daunting,
but here’s a rundown of what you need to know before you apply.
Decker explained that FHA loans have relaxed underwriting guidelines which
include short waiting periods for past derogatory credit events such as
foreclosures, bankruptcies and short sales. The lower credit score requirements
allow a much broader audience to qualify. “Usually lenders just require a
score of 580,” Decker said, adding that lower scores can be approved.
To qualify, the loan must be used for a primary home transaction
and applicants must meet debt-to-income ratio requirements and provide a
minimum 3.5% down payment.
Decker added that to receive an FHA loan, applicants must:
Not every lender provides FHA-backed loans but it is easy to
find an FHA-approved lender by contacting banks or using HUD’s lender list search tool.
By Caroline Basile - To view the original article click here