Getting a mortgage can be a lot easier with an FHA loan, as they do have different requirements for buyers. However, first-time home buyers will want to make sure this is the right option for them. It’s crucial to know what an FHA loan is, how to qualify, and what is needed to apply before making any decision.
Lower Down Payment Possible
With a conventional loan, the standard down payment is typically 20% of the amount paid for the home. However, with an FHA loan, as little as 3.5% can be used as a down payment. This means the borrower doesn’t have to have as much money saved, which can mean they don’t have to wait as long to purchase a home. They may want to learn more about FHA loans if having a lower down payment is important.
Lower Credit is Possible
Credit scores are an important way for mortgage companies to determine who is able to repay the loan. For this reason, most mortgages require a higher credit score before approving applicants. FHA loans, however, are designed to help those who may need extra help, so it is possible to get an FHA loan with a lower credit score. The basic credit score needed for an FHA loan is 500, but for the lowest down payment amount, 580 is needed.
Ability to Borrow with High Debt-to-Income
A person’s debt-to-income ratio can impact their ability to obtain a mortgage. Those who owe a higher amount of debt compared to their income may not be able to get a conventional loan. However, they may still be able to get an FHA loan. The borrower should try to pay down some of their debt if they owe a high amount before applying, but they shouldn’t let a higher debt-to-income ratio stop them from trying to buy a home.
Different Property Requirements
With a conventional loan, it is possible to purchase any home within the borrower’s financial limit. With an FHA loan, though, there are some restrictions on what can be purchased. The borrower can’t buy a home that has been flipped or that the borrower wants to flip. The home also can’t be an investment property, though there are exceptions to that. If the home has multiple units, some of them can be rented out as long as the borrower lives on the property. The property does need to meet certain standards before it can be approved.
Applying for a Loan
Borrowers who are ready to apply will want to make sure they have records of their finances, including their employment information, pay stubs, documents showing assets, and their current bank statement. They will also need to list their addresses for the previous two years and be prepared to provide other information as required in the application. Once it is filled out, it can be sent to be approved or denied. If approved, the borrower can then purchase a home.
If you’re trying to find the best mortgage for your situation, an FHA loan may be a good idea. Speak with a mortgage broker to learn more about FHA loans, make sure you qualify, and to get help filling out the application. They can walk you through everything to make sure you’re more likely to be approved and able to purchase a home.
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