When it comes to loan shopping for a new house, it may be hard to get approved by private lenders. Private lenders want to be sure that the applicant they are giving the loan to has the capability to return it back in a timely manner. In order to protect themselves from loss, lenders set-up extensive approval criteria.
But if you have heard of FHA loans and request their program information, you may have more opportunities getting approved for that mortgage by private lenders. FHA loans are backed by the Federal Housing Authority, which means that although the loans are provided by private lenders, they are insured by the government. So, when someone fails to repay the loan, it is the government that bears the losses.
Minimum Standards for Qualification for an FHA Loan
The good thing about FHA loans is that they have minimum standards for loan qualification unlike other private lenders. The guidelines for loan qualification in FHA loans are set-up by the government. Therefore, when looking for a mortgage for your home purchase, you can apply for FHA loans that are easier to get approved for. Although there are many private lenders with tougher qualification criteria, most of them offer flexible loan plans. FHA loans allow buyers get affordable deals and flexible terms on home loans.
Lower Credit Score and Down Payments
When it comes to getting approved for a mortgage, many home buyers have a hard time getting low down payments with a lower credit score. Most lenders have a very high credit score approval bar that a majority of buyers are unable to qualify for. Moreover, the down payments for private loans are higher, making it unreachable for many would be home buyers.
However, FHA loans on the other hand have lower credit score and down payment requirements. Anyone with a credit score of at least 580 can qualify for an FHA loan. Furthermore, according to HUD homes, the down payment for these loans is just 3.5%, much lower than conventional 20%.
Higher Monthly Debt Ratios
Unlike conventional loans, FHA loans allow home buyers to qualify with higher monthly debt ratios. When it comes to FHA loans, you qualify for a new house payment with 29% of your monthly gross whereas conventional loans allow only for a 28% of your monthly gross income. This ratio is set by FHA and is followed by all private lenders teamed up with the government. Even with your total monthly debt reaching up to 40%, you can qualify for an FHA loan.
Lower Closing Costs
When you apply for an FHA loan for a home purchase, the seller has the option to pay 6% of the buyers’ closing cost. This means that you get a chance to lower your closing costs. Many home buyers focus on saving more money for the down payment instead of worrying about the increasing closing costs. Conventional loans on the other hand allows sellers to only pay up to 3% of the closing costs, that puts a lot of burden on the buyer, increasing their closing cost.
Flexible Loan Limits
Sometimes you want a bigger loan depending on the property that you are buying. However, not every lender offers the flexibility you have with the FHA loan. You can get up to $625,500 for a mortgage with FHA loans.
No Interest Rate Penalty
Having a low credit score always impact the amount of interest you pay for your mortgage. Not in the case of FHA loans!
FHA loans offer interest rates based on current market rates. The rates are neither lower nor higher, making it a safe option to choose. What’s more is that the buyers with low credit scores can also qualify for the same interest rate on loans unlike conventional lenders who charge a higher interest rate to cover the risk. This means that if you are a credit challenged buyer, you can get an interest rate that everyone in the market is getting.
Covers Costs for Home Upgrades
FHA loans offer a 203k loan program which covers home repair costs incurred by home owners. This means that if you have a 203k loan, you can borrow money for home renovations and repairs. This loan program covers a range of repair costs including structural changes, home teardowns, and new roofing. You can secure a loan for all minor and major home upgrades/repairs.
Affordable Home Financing with FHA Loans
FHA loans have been in the market for over eighty years. This government backed loan program has helped thousands of home buyers make trouble-free purchases. FHA mortgages can be more flexible than conventional loans that have higher interest rates, closing costs, loan qualification criteria, down payments, and much more.
Over all, if you compare conventional loans to FHA loans, you get to buy your desired house on terms that fit you best. These loans are quite popular in the U.S. for their innumerable perks that they offer to buyers including lower down payments.
Whether you are buying a low cost home project or a costly one, you can rest assured that you can find a FHA loan to meet your needs. Even with a bad credit history and credit score, you can easily qualify for an FHA loan. What’s more is that you do not have to possess the perfect credit score.