FHA Loans for Beginners
Are you in the process of buying your first home? Or are you returning to the market following bankruptcy or foreclosure? If so, an FHA loan might be the right type of mortgage for you. FHA loans are perfect for new borrowers of those with imperfect credit. Because FHA mortgages are insured by the government, lenders offer them to borrowers who don’t meet the stringent requirements of conventional mortgages.
An FHA loan requires mortgage insurance to counterbalance to the lenient qualification requirements. If you are approved for an FHA loan, you will be required to make additional mortgage insurance payments. The amount of the insurance and period of time you’ll have to make the payments depends on the loan-to-value ratio and the amortization period.
If you think an FHA loan might be the right fit for your situation, you can check out the basic requirements before applying. Make sure the property you want to finance qualifies under the FHA restrictions. FHA loans are only available for a property that will be the primary residence of the borrower. You can’t apply for an FHA mortgage to finance a rental property or vacation home. The property must also be examined by an FHA-approved appraiser. Additionally, there are limits on the amount of an FHA mortgage, which are based on the state and county in which the property is located.
If the property passes the requirements, the next step is making sure you, the borrower, meet the qualifications for approval. You must have a steady income from a stable job. FHA loans also have specific credit requirements. To qualify for the lowest down payment amount, 3.5% of the purchase amount, you’ll need a credit score of at least 580. If your score is between 500 and 579, you will have to bring a 10% down payment to the closing table. Credit scores are useful to lenders as indicators of your credit-worthiness. However, a lender decides if a borrower qualifies for a loan on a case-by-case basis. There are additional credit requirements if you have a bankruptcy or foreclosure in your past. As a general rule, you must be more than two years past a bankruptcy and three years past a foreclosure to qualify.
FHA loans are ideal for first-time homebuyers or those who have recently re-established good credit. Because the FHA mortgage requirements are less strict, borrowers must pay mortgage insurance. If you are interested in applying for an FHA mortgage, it’s important to BE sure that both you and the property meet the loan requirements.