If you’re feeling intimidated about buying your first home or wondering if you can meet the qualification requirements to get approved for a mortgage, you’re not alone. Like many other hopeful homebuyers, you might benefit from lower minimum credit score requirements, down payments as low as 3.5%, and minimal closing costs, among other benefits.rnrnThese features make FHA loans one of the most popular mortgage options available. Backed by the Federal Housing Administration (FHA), these loans make homeownership accessible to more people.
Lenient requirements make home ownership possible with lower credit scores
Typical 3.5% down payments and gifts allowed reduces stress of home purchase
Flexible terms provide monthly payments you can afford sustainably
With flexible qualification requirements, you don’t have to compromise on finding and purchasing the home you want. FHA loans apply to a variety of property types and can be fixed or adjustable-rate to meet both your short and long-term financial needs. Apply with a credit score of 500 or above, even with a higher debt-to-income ratio. Use a gift to help cover your minimum down payment and get better rates than you would with a conventional loan. Is an FHA loan right for you?
An FHA loan is not exclusively for low-income buyers or first-time homebuyers. If you meet the required credit and debt-to-income ratio guidelines and have sufficient funds for a down payment, you’ll likely qualify.
Yes, if you’ve had a bankruptcy in the past, you’re not disqualified from an FHA loan if a court has dismissed or discharged your loan before you apply.rnrnIf you’ve had a foreclosure in the past, you need to wait at least three years before you can apply for an FHA loan, provided that you’ve re-established good credit since then.
When considering a down payment, think about how much you’ve saved, the value of the house you want to buy, and how the down payment amount impacts your potential mortgage. With an FHA loan, you can also use a gift toward your down payment amount, as long as it’s well-documented and not a loan.rnrnA typical minimum required down payment for FHA loans is 3.5% for credit scores of 580 or more. With a higher down payment at 10%, you may qualify with a lower credit score. Various requirements are considered to determine your minimum down payment amount.
FHA loans require an upfront insurance fee due at the time of home purchase. It usually costs 1.75% of the loan.rnrnAn annual mortgage insurance premium (MIP) is also required that ranges from 0.45% to 1.05% of the loan amount. This fee is paid monthly with your mortgage payment. FHA MIP usually lasts the life of the loan.
FHA loans differ in that they’re insured by the government, so lenders don’t need you to meet the stricter qualification requirements of a conventional loan. If you have a lower credit score or down payment, an FHA loan may be the most affordable option for you. It may not provide as wide a range of options compared to a conventional loan, but it offers competitive interest rates and low down payment options. A conventional loan, on the other hand, often has stricter qualification requirements based on standard borrower criteria. The benefit, if you qualify, is that you also get better options when it comes to your mortgage insurance, term lengths, and closing costs, as well as a lower interest rate.
