Do you picture your landlord pocketing your rent every month and despair of ever owning a home of your own? The Federal Housing Administration (FHA) may have your ticket to home ownership, even if you have little to no money for a down payment. This government-sponsored home loan program offers loans that are custom made for people who have less-than-perfect credit but have a dream of putting their hard-earned dollars toward a mortgage instead of rent payments. To learn more, read on for 6 facts that you should know about FHA loans.
1. If you've had some "dings" on your credit, and many do, you may still be able to qualify for an FHA loan. While many lenders require a high score for conventional loans, the FHA only requires that you have a score of at least 580. With that score you should be willing to put down at least 3.5% for the loan. If your score sinks even lower, the FHA can still help you. For those with a score between 500 and 580, you may qualify for a loan if you can put more money down; at least 10%
2. Many people have had some bad financial luck and now have a chapter 7 bankruptcy on their record, but this is no bar to getting an FHA loan as long as you are at least two years from your discharge date. You must also show that you have learned from your past mistakes and now use credit more wisely. Keep in mind that some lenders will want to see more than two years of time past the bankruptcy.
3. With a past foreclosure, you might expect that most lending institutions would think twice about lending to those people again, but the FHA will consider a home loan if you are at least 3 years past the foreclosure. In fact, you may be able to get a loan sooner than 3 years if you had good reason for the foreclosure.
4. It may the last thing on your mind while house-hunting, but FHA mortgages are assumable, which means that the next qualified buyer for your home could have a quick and easy loan and approval process. This attribute could help you to sell your home more quickly, so that you can buy a bigger and better home.
5. The FHA does have limits on the total amount that can be lent and is based on factors like your location, your credit score and report, and your debt-to-income ratio.
6. FHA loans are guaranteed. This bit of information can seem confusing to some, since it may not mean what you think. It means that the lending institution may be more likely to lend money when it comes to government-guaranteed loans, since the the lender won't suffer any losses if the buyer walks away and stops making mortgage payments. The government will pay the lender back for any losses.
Be sure to speak to your lender or real estate agent, like one at Cudd Realty, about an FHA loan.