The American dream might be alive and well, but that doesn’t mean that everyone has equal access to it. Here’s the problem: affordability. You might see a house you like, and you might come to realize that it is your dream house, but that doesn’t mean you can afford it, especially if you are paying out of pocket. This is where FHA mortgages come into the picture and they can save you a lot of trouble.
This is an acronym which stands for Federal Housing Administration and it is an agency situated within the US Department of Housing and Urban Development. The appealing factor here is that the FHA offers lower interest rates and less stringent requirements that is available to some buyers who can take advantage of them. Before you jump in and latch on to any particular loan option, however, there are a few facts about FHA loans that you should know.
The Minimum Credit Scores for FHA Loans
There are minimum credit scores for FHA loans, contrary to popular belief, and if you’re going to get a down payment of 3.5% or lower, you’ll need to have a credit score of 580 or higher. If you do have a screw between 500 and 579, you will need to make a 10% down payment, so know your score before you borrow, and even go so far as to check it online. Something important to keep in mind, is that if you have a score that is lower than 500, there is a good chance that you won’t be ineligible, though there are allowances for those who have a nontraditional credit history. For more information on that, you will need to ask your FHA lender.
The Down Payment
In most cases, or at least in the cases of most FHA borrowers, the down payment will be about 3.5% of the purchase price of the home, which is definitely something that attracts buyers from all over the country. Thanks to some of the provisions on the FHA, home sellers, builders, and lenders are able to pay off some of the closing costs for the borrower. These can include:
This seems like a bit of a stretch but it can become a great incentive for an individual to purchase a new home. Remember, lenders will almost always incur a higher interest rate if they agree to pay off the closing costs, so keep that in mind when you’re looking into FHA loans.
The FHA is not actually a lender. It’s an insurer and borrowers will need to speak with an FHA approved lender to received their funding. Keep in mind that while Sallie Mae and Freddie Mac have reduced the down payment to 3%, you might pay more depending on the institution that you go through.
There are definitely some restrictions to consider on the FHA mortgages today, but they are also a great way for you to find yourself in the house of your dreams �” consider looking into one today.