Let’s talk about the benefits of FHA Loans
An FHA loan is issued by the Federal Housing Administration, and it helps the borrower secure a mortgage when that borrower may not be able to do so themselves because of things like bad credit or low income. We will also talk about how to get an FHA loan and what the limits to these loans are. By the time we are done here you should enough information about FHA loans to successfully apply for one yourself.
Lower Fico Scores
There are a lot of reasons why an FHA loan can be better than the traditional mortgage loans that are offered by banks and private lenders. The requirements for an FHA loan can vary by state and county depending on where the property you want to buy is located. One thing that makes an FHA loan better than a traditional mortgage is that you don’t need to have near perfect credit in order to get one. Typically a FICO score of 580 or better is enough to qualify you for an FHA loan. A score of 580 or better means you also qualify for the low down payment of three to four percent of the purchase price. Having a score below 580 does not necessarily mean you won’t get an FHA loan, but you may be required to make a down payment of at least ten percent of the purchase price
FHA loans also offer a much lower interest rate on your loan then traditional lenders will. This might not seem like a big deal, but it actually is. The interest rate is tacked on to your mortgage payment, and it can significantly lower your monthly mortgage payments. The rates offered by banks and other traditional mortgage lenders can make your mortgage payment quite expensive, a lot of people have lost their homes because they could not make the payments.
Now let’s get into the requirements for an FHA loan. While it is true that these requirements will vary depending on where you want to buy, you will still need to provide a lot of information. You will be asked questions about your family, your income and your credit history. You may also be asked to provide things like birth certificates, social security numbers, and other important information.
It is important that you find out what you will need to complete your FHA application, and that you have all of those things when you submit it. If you don’t have all your ducks in a row, your loan application may be denied. In most states this means you will have to start over and reapply. The FHA doesn’t want to waste your time or theirs either.
You will be asked to document where you have lived and worked for the last two years. You will also be asked to document your creditworthiness, this doesn’t just mean your credit score, it also means your ability to meet your financial obligations. You will be asked to prove income information for all of the types of income you receive, including work related income and any W2’s that you have filed. The FHA is also going to want to know if you own anything of value, including automobiles and other property.
Debt to Income Ratio
The FHA will also look at your debt to income ratio when determining your eligibility for an FHA loan. In other words, they are trying to figure out whether or not you can afford the home you want. They take the cost of the monthly mortgage and divide it into your total monthly income from all sources. The figure they get after this is done is considered to be your debt to income ratio. The highest debt to income ratio you can have is around forty three percent. It should be noted that each state does things a bit differently, so your acceptable debt to income ratio could vary by a few percentage points.
FHA Approved Lenders
Here are some other important facts about FHA loans that you should be aware of. Some people mistakenly think that the FHA itself issues their loans, but this is actually not the case. The FHA is just the agency that approves the loans. People who want to get FHA loans must first find an FHA approved lender. The FHA keeps a list of FHA approved lenders on hand for those people who need it, and only these types of lenders can give you FHA loans.
Sometimes you can save money on your closing costs and property assessment costs by asking the lender to roll these costs into your loan. A lot of lenders will pick up these costs but they reserve the right to charge you a higher interest rate for doing so. The borrower also has to pay FHA loan insurance if they qualify. Loan insurance basically means that if you default on your payment your lender is covered to some extent. Loan insurance, or mortgage insurance is paid in two separate parts. The first part of this insurance payment is due when the borrower receives the loan. The amount of this payment is typically 1.75 percent of the total loan. A person who is borrowing $100,000 would pay $1750 up front. You can choose to have this amount added to your overall loan, but here again you will probably have to pay more interest for that convenience.
The second part of the mortgage insurance payment is paid monthly. The cost to you is based on how long your loan term is, the overall value of the property and your interest rate. This part of your mortgage insurance payment cannot be added to your overall loan. It has to be paid monthly. Borrowers can also get extra money for any repairs that need to be made to the home they are purchasing. This loan is considered to be separate from your mortgage loan, and the amount you can get is based on the value of the property after all necessary repairs have been made.
Financial Hardship Relief
The FHA does realize that sometimes people run into financial trouble, Jobs are lost, and emergency bills can make meeting your loan obligations a problem. If you can’t make your loan payment for any of these reasons, you can apply for financial hardship relief. This relief can take a few forms, it might mean forbearance on your payments, and it might also mean getting you payments amount lowered by an adjustment to your interest rate.
We have covered most of the things you need to know before applying for an FHA loan. It should be noted that FHA loans really are for people who can’t afford to finance a home purchase through conventional means. It is not for people who just wish they had a better mortgage rate. Applying for an FHA loan is not a walk in the park. So be prepared for the long haul, and make sure you have everything you need before you actually apply. An FHA loan can mean the difference between owning a home or not owning one. Having a home of your own is a major accomplishment and a lifelong dream for many. If you get the chance to pursue that dream, make sure you take it. You will thank yourself later.