FHA Home loans Offer Several Great Benefits
FHA loans are great for many homebuyers because they can acquire a new home with a small down payment. The FHA, a government sponsored program, was designed to enable more people to purchase a home. Not only can you get into a home for a smaller down payment, it’s easier to qualify. FHA doesn’t actually lend the money itself, but provides a degree of insurance for your lender. This provides incentives for lenders to make more loans. Many first time homebuyers find that FHA loans are attractive.
Do you need to borrow money from a relative to make the down payment? If so, you can still get a FHA loan. In fact, you are not even required to disclose where the money came from. The only requirement entails having the funds ready when you decide to buy.
There are some requirements for getting a FHA loan. Obviously, you need to demonstrate the ability to pay. This includes your income and how long you have been employed. In addition, your current debt will be compared with your income. A metric that puts these two together is the debt to income ratio. This is used to determine whether or not you can afford to own the home. If you’re not able to meet this requirement to qualify, you will need either a larger down payment or a less expensive home.
You must also have fairly decent credit. You don’t need a perfect credit score; but you need to show that you will commit to making your payments. Right now, a minimum of 620 FICO score is needed. FHA is generally more lenient than
conventional loans with your credit score being only one part of the qualification process. Depending on your situation, you may qualify with subpar credit with a larger down payment.
There is one drawback to obtaining a FHA loan, however. Mortgage insurance premium consists of an upfront fee of 1.5% when you purchase the home. There is also an extra expense that you will be required to pay every month which comes out to 0.5% per year. This insurance expense covers the cost of paying for the government sponsored program by insuring the lender against default.