Planning for FHA loan- A Complete Guide That Will Help You To Decide On It
Are you planning to buy an FHA loan and searching for the best idea on it? This blog will help you to understand every detail about FHA mortgage loan and resolve your queries.
What is an FHA Loan
An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA) and it is the best for first-time buyers as they allow a minimal amount of down payments depending upon the credit scores. It should be noted here that the lower the credit score, the higher the interest borrowers will receive and vice versa. This kind of loans is designed to those who have low moderate-income home buyers with more lenient credit score requirement and low down payment. FHA mortgage loans are often available to home buyers who do not qualify for traditional mortgages.
FHA loan qualifications or requirements
There are certain requirements that the FHA inhibits on the lenders and only after fulfilling all these requirements, the loan will be sanctioned. These requirements include:
· The credit score must be at least 580 following by 3.5% down payment.
· A person should obtain a credit score between 500 and 579 for 10% down payment.
· The borrower is required to have MIP (Mortgage Insurance Premium ).
· The borrower must possess a 43% Debt-to-Income Ratio.
· It is necessary that the borrower must have a primary residential home.
· The borrower must have a steady income and a genuine proof of employment.
Merits and demerits of FHA loan
There are certain benefits as well as drawbacks while you go for an FHA loan. Here are some of them mentioned as under:
Ø It has low down payment requirements.
Ø First-time home buyers and those who have not owned a home in at least three years or more may qualify for FHA mortgages.
Ø FHA also offers to finance for mobile homes and factory-built homes. Moreover, there are loan products to accommodate people who own the land where the home will be located.
Ø Buyers who want to lock in a low rate but don’t have a large down payment, FHA can be the best option for them.
Ø The biggest drawback of an FHA loan is the insurance premiums. The borrowers are required to pay two different types of insurance such as MIP and an annual premium.
Ø The variance of the costs is another important drawback of an FHA loan. This variation may show up in bigger monthly payments and more principal payable.
Negatively affecting aspects of FHA loans
From all the above discussions, it is clear that there are great benefits of FHA mortgages loan. However, there are certain factors that may affect you adversely in your loan eligibility. These are mentioned as under:
ü No Credit History
ü Late Payments
ü Collections, Judgments, and Federal Debt
Differences between FHA and conventional loans
If you are confused about whether a conventional or FHA mortgage is the best way to go. Then you should note that there are some differences between FHA and conventional loans that make former better than the later. Some of these differences are mentioned as under.
FHA v/s Conventional loan
· FICO score: Your FICO credit score, which is the most important score for the lenders, generally needs to be at least 580 to qualify for an FHA loan. Whereas, conventional loans require at least 620 FICO credit score to qualify the loan, and a higher credit score is needed to qualify for the best interest rates.
· Down payment: You can get an FHA loan with a down payment as low as 3.5 percent. On the other hand, some conventional mortgages require down payment as low as 3 percent and generally, it requires 5 to 20 percent down payment.
· Debt to income ratio: You can easily qualify for an FHA loan with a less favorable debt-to-income ratio, known as a DTI. But this is, on conventional loan, higher and makes it less favorable to the first time buyers.
With this above mentioned information, we may be able to resolve all your queries regarding FHA loan and now you might be clear to whom to go, right? Rob, with his years of experiences in the mortgage industry, has successfully developed the idea that trust, knowledge, and transparency are the three important things that the client values the most. His knowledge of every detail about the mortgage loans makes him different from others. Thus, if you have any query left to resolve, Rob will definitely answer you concisely to make everything clear to you.