Having a house that you can call your own is part of the American dream. With a home, you can improve your stability and get a better sense of where your money is going, as opposed to living in a rental
However, buying a property is not an easy process. It is usually costly, and it will require you to spend a lot of time and effort. Fortunately, financial institutions and banks provide financial assistance, such as a mortgage, to help make the process more manageable.
If you’re considering buying a house and looking for the right mortgage for your needs, you might have come across what’s called an FHA loan. In this article, we’ll talk about everything you need to know about this type of loan assistance.
Understanding FHA Loans
The Federal Housing Administration was established in 1934 to make homeownership more accessible to the American people. The loans they issue are from private lenders, but the FHA backs them. With FHA acting as insurance for these lenders, more low- and moderate-income individuals have the chance to get their loans approved.
Since FHA only acts as insurance, borrowers still need to look for a lender that should be FHA-approved. That’s the only way they can make use of the FHA loans. That also means that the financial assistance you’d get won’t directly come from the FHA. You should also expect to see variations when it comes to their terms and offers because not all lenders have the same interest rates and costs.
What Makes FHA Loans Stand Out
Here are the primary reasons more people find FHA loans more accommodating:
Easier process for qualifying
At least 580 credit score requirement to avail the 3.5 percent down payment
Down payment can be from gift money or help from the seller
Non-occupying co-signers or co-borrowers are allowed
Low mortgage rates
Terms can be 15 years or 30 years
DTI ratios can get as high as 50 percent
Buy any types of home: single-family, condos, multi-unit properties, manufactured homes
Sellers can pay up to six percent of the closing costs
Acquire more funding for renovations or repairs through the FHA 203k program
How to Qualify and the Loan Requirements
FHA loans have been a popular mortgage option in the country. Instead of the usual 10 to 20 percent required down payment, FHA allows down payments of as low as 3.5 percent. Your application can also be approved even with thin credit of at least 500 to 580 or credit history problems.
The ideal credit score for FHA loaners is within the range of 580 to 640. If you have a 500 credit score, you can qualify for the 10 percent down payment, but if you have a 580 credit score, you’ll get the 3.5 percent down payment.
Apart from the credit score, here are the other qualifications needed:
Be a legal resident of at least 18 years of age
Must occupy the home as a primary residence
No late payments within the past 12 months
No bankruptcy or foreclosure in the past three years
No tax liens or open judgments
DTI ratio below 43 percent
Steady employment of at least two years with current employer
Cash reserves that are equivalent to the value of your one to two mortgage payments
Two years of tax returns, W2s, and paycheck stubs
Conclusion
An FHA loan is an ideal refinancing program for first-time homebuyers. With the ease of method for qualifying and lower requirements compared to other mortgage options, the dream of having your property is more manageable to achieve now.
If you’re looking for Davison homes for sale or real estate experts in Genesee County, Smith Street Homes is here to help you find your dream home today! Contact us now.