Ready to Start the FHA Loan Process?
What Is An FHA Loan?
An FHA loan is a mortgage loan that is meant for low-income home buyers. The loan is insured by the Federal Housing Administration, hence the name. The advantage is that you don’t have to make a very large down payment which is a relief to low-income families who wish to purchase a home.
How is Going FHA Different Than Going Conventional?
As mentioned earlier, one of the biggest advantages is that it does not require a large down payment. In addition to this, there are several other benefits as well. For instance, while conventional mortgage requires that the borrowers must have an excellent credit history, they are granted for people with a moderately good credit history. In addition, they have fixed interest rates and a loan term of 15 to 30 years.
The extended loan term means that borrowers do not have to worry about making huge monthly payments.
What Are the Eligibility Criteria for Taking out an FHA Loan?
- In order to apply for an FHA mortgage, you must possess a Social Security number that is valid and must be of legal age to sign a mortgage in the state where you happen to be residing.
- While FHA loans are granted even in case of a moderate credit score, you must possess a score between 500 to 580 in a credit score range between 300 and 850. In addition, if you faced bankruptcy, you should be at least 2 years out of it and should have re-established a decent credit score by the time you are applying.
- They will be granted only after your home goes through a standard appraisal process and because of this, it is essential that your home meet proper standards when it comes to construction.
- You also need to have a stable employment history. The FHA requires that in order to be eligible, you must have worked with your current employer for at least two years.
- They will be granted only if the total debt, i.e. the mortgage plus all other debts like student debt, auto loans, and credit card payments fall below 50 percent of your total income.
What Should You Know Before Taking out an FHA Home Loan?
Mortgage Insurance Premiums
If you are taking out an FHA loan, you will be required to pay a Mortgage Insurance Premium. Other loan products such as conventional loans only require mortgage insurance if a down payment of less than 20% is made. This acts as a security blanket for the lender in case a buyer fails to close off the loan. The MIP varies based on the loan amount, loan term, and the percentage of down payment.
Buying a Second Home
Once you have financed the purchase of a home, you are not allowed to apply for a second FHA loan to finance the purchase of a new home. In addition, the buyer should move into the house within 60 days of closing the purchase and should occupy the property for a minimum of one year.
If you would like any more information about FHA mortgages, don’t hesitate to contact us.
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