If you’re like most people, then one of your greatest dreams is to someday have a home of your own too. Nothing beats the feeling of pride, safety, and security afforded by the idea that you’ll always have a roof over your head. These times we live in, though, makes homeownership an almost-impossible feat.
What is the FHA Loan?
The U.S Department of Housing and Urban Development, through the Federal Housing Administration, created the FHA loans to provide more accessible homeownership options for the average, working class.
While the HUD does not directly offer these loans, they work with FHA-authorized lenders by guaranteeing mortgages under the program. This resulted in more affordable and easier to qualify home loans, that are within the financial capacity of low and moderate-income families and individuals.
Why does the FHA home loan appeal so much to the average family?
One thing that makes the FHA mortgage one of the best home loans available today is its lower credit score requirement. FICO scores are often the reason why loan application gets rejected. Private lenders typically require a credit score of 680 or higher, which many families find too out of reach.
For an FHA loan application, however, a credit score of 580 should be enough to qualify for an FHA mortgage with a 3.5% down payment rate. Even individuals with FICO scores as low as 500 can try their luck and apply, given that they put in at least 10% in upfront payment when approved.
Also, most FHA lenders have a no-minimum-income policy. People different income levels are welcome to apply, as long as they as they are currently employed and have been working with the same company for at least two years.
By lowering the mortgages’ qualification standards and down payment rate, has made many people’s dreams of becoming homeowners come true.
Are there any downsides to the program?
Like everything else, the FHA loan is not without flaws. And perhaps, one of the biggest downsides to the program is the MIP or the mortgage insurance premium.
Because there’s so much more risk involved in originating FHA loans, borrowers are required to pay insurance. A part of that insurance is paid upfront, during the closing of the loan, while the rest is divided into monthly payments which last for the life of the mortgage.
The good news is, you don’t have to pay the upfront MIP out-of-pocket. A relative or a sponsor may donate the money for the insurance and the rest of the closing costs.
Many homebuyers still opt for an FHA home loan despite this particular drawback because there are hardly any other mortgage programs with similar lenient qualifications.
How can I apply for an FHA loan?
Most lending institutions in the country cater to FHA loan applicants. You should not have trouble finding FHA-approved lenders online or in your area,
When you’re ready to apply, you can check your chances by qualifying for FHA loan online first. Remember that different lending companies have different standards; if you get rejected by the first one, you can always try another lender.
Nevertheless, a mortgage is a huge financial responsibility. Give it a good thought and weight your financial situation before taking the next steps.