If you are tired of paying your landlord every month instead of building up equity in a home of your own, the Federal Housing Administration (FHA) may have your answer. Even those who have little to no money for a down payment and less-than-perfect credit could see their dreams of being a homeowner realized with this program. Read on to learn 10 facts about FHA loans and to help put you in grasp of your dream home.
1. The requirements for traditional home loans usually include high credit scores, with a score of at least 720 being considered "excellent." The good news when it comes to FHA loans, however, is that with a score of at least 580, you can be approved with a down payment of only 3.5%. If your score is even lower, don't despair; if you can come up with a down payment of at least 10%, you can qualify with a score as low as 500.
2. Bankruptcies can leave a black mark on your credit history, making it difficult to be approved for a traditional mortgage. If you are at least two years from your filing date, however, you may be approved for an FHA loan, as long as your more recent credit history show a wiser use of credit.
3. If you have a foreclosure in your past, you will likely have trouble convincing a lending institution to take a chance on you. The FHA will consider you for a mortgage if your foreclosure was at least 3 years ago, however.
4. Though you might not be considering this aspect of home ownership right now, when the time comes to put your home on the market you may have an easier time selling it with an FHA mortgage attached, since it is assumable.
5. The amount available for FHA loans depends on where you live, your debt-to-income ratio and your credit report.
6. FHA loans are more attractive to lending institutions, due to the fact that they are guaranteed. In this instance, the word "guaranteed" refers to the government's (the FHA is part of the federal government) guarantee that the loan will be paid to the lender even if the borrower defaults on the loan.
7. With the FHA loan's low down payment also comes the requirement for the borrower to purchase mortgage insurance. This 1.75% cost can be added onto the mortgage or paid upfront.
8. All loan applicants must show at least two years in the same job or the same general industry.
9. The FHA requires that your debts (your new mortgage payment, taxes, and homeowner's insurance) be no more than 43% of your total debt on a monthly basis.
10. The FHA requires that your potential property pass an appraisal that verifies that the loan amount is commiserate with the properties' value.
Contact your real estate agent or your local lending institution for more information about taking advantage of this valuable perk for potential homeowners. Click here to learn more or buy real estate.