If finances are tight, borrowers may be better off with FHA home loans. Credit qualifications for FHA mortgages allow more wiggle room. For example:
- Down payments may be gifts from parents or relatives
- Down payments may be as low as 3.5 percent of the loan amount
- Closing costs are lower
- Credit history may be overcome
The FHA developed its loan program to promote homeownership in the United States. There programs offer alternatives for homebuyers who do not have credit histories, equity, or savings. Applicants, however, most be able to show the ability to make regular loan payments. Documentation of debt to salary ratios will be examined by the lenders.
Borrowers who opt for lower down payments must carry private mortgage insurance(PMI). This adds expense but it may be paid in cash or financed as part of a loan.