FHA Loans

What is an FHA Loan?

An FHA Loan, as the name suggests, is a loan that is insured by the Federal Housing Administration. It’s typically popular among first-time home buyers and among low-to-moderate income borrowers who are not yet allowed to make larger down payments.

With an FHA loan, you can borrow up to 96.5% the value of the property that you desire if you reach a credit score of at least 580. Plus, the 3.5% down payment requirement can come from a gift or a grant if you are able to find a sponsor.

However, if you don’t meet the credit score of 580, you are going to be required a 10% down payment.

People who have high debt-to-income ratios, meaning, their monthly debt obligations are high compared to their income, are stuck with getting an FHA Loan. Since high debt-to-income ratios don’t qualify in a conventional mortgage.

The federal government created the FHA loan program as a result of the high number of foreclosures and defaults that occurred around the 1930s. They wanted to create an avenue for mortgage lenders and people with low to average credit scores to connect and make loans more accessible, in order to stimulate growth in the housing market.

Who Should Get an FHA Loan?

If you have either of the following, then you should consider taking out an FHA Loan:

✓ Have income that is verifiable (payslips, tax documents, bank statements and etc.)

✓ Have a high income-to-debt ratio

✓ Want to purchase a home that does not exceed FHA Loan limits ($ 679,650 for 2018)

✓ Have a sponsor who is willing to give you the down payment as a gift, and the closing costs can be paid for by the seller or lender

✓ If you want to finance a purchase up to 96.5% of the property price, and have a FICO score of 580-640

✓ Have an established credit history

✓ Want to borrow more than the purchase price to pay for home repairs

✓ Are two years out of bankruptcy or three years from a previous foreclosure

Remember that FHA loans are not just for 1st-time homeowners. It is open to those who want a secure 15 to 30 year fixed rate loan, even if you’ve had damaged credit or don’t have that much money in the bank.

You get many benefits and a level of security that you won’t necessarily find in other types of loans. Plus, the flexibility of being able to borrow money even if you don’t have the best of credit scores.

As with all other types of loans or mortgages, you can never fully determine which type of loan is best for you until you speak to a trusted mortgage professional.

A mortgage professional will be able to match you with loans that you can qualify for, and guide you through the entire application process. There might be advantages that you could miss out on if you don’t consult a mortgage expert.

We’re interested to know what questions and thoughts you have in mind when it comes to owning your next home.

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