Will an FHA Loan Fit Your Mortgage Needs?
What is an FHA Loan?
The FHA loan was developed to promote homeownership in the United States. Would it help you? The FHA mortgage program serves people with lower credit scores and little savings, giving them a better chance to own homes.
With FHA home loans, buyers get more wiggle room with their credit than they do with conventional mortgages. In addition, FHA backed mortgages require as low as 3.5 percent down payment.
FHA loan lenders follow FHA guidelines for homebuying and refinancing. Available FHA loans offer financing or refinancing for single-family homes, condominiums, townhomes, and multifamily units. In addition, through the FHA 203K loan program, current homeowners may apply for renovation loans.
FHA also stipulates loan limits.
How does an FHA loan work?
Homebuyers without credit histories, equity, or savings look to the FHA loan programs. FHA loan lenders offer a little longer leash with FHA mortgages than conventional mortgages.
Regardless, applicants must show the ability to make regular loan payments. As part of the process, lenders examine documentation of debt-to-salary ratios.
A reputable FHA loan lender can help by suggesting ways to improve credit and financial health. For one, FHA lenders can steer buyers to the best price range for their home searches. In a competitive market, buyers may want to ask for pre-approval letters to be able to move quickly when the right home comes on the market.
What is an FHA 203K loan?
By applying for the FHA 203K loan, current homeowners take advantage of FHA guidelines to finance home remodeling and refurbishment projects.
What are the advantages of an FHA loan?
FHA loans prevail in the United States because they offer benefits when needed. Renters can become homeowners; others can move up. The following aspects appeal to first-time buyers as well as other applicants:
- Parents and relatives can help with down payment costs.
- Down payments may be as low as 3.5 percent of the loan amount.
- If down payments are lower than 20 percent, lenders require PMI. However, this mortgage insurance may be paid in cash or added to mortgage payments.
- Closing costs are lower than for conventional loans.
- Credit history may be overcome by other factors.
Qualifications for an FHA Loan
Smart homebuyers take steps ahead of time to qualify for their FHA mortgages. In addition to saving for a down payment, the most common preparation includes paying down debt and refraining from making big purchases.
To quality, applicants must:
- Have verifiable income
- Have sufficient income to make house payments and debt payments
- Save or be gifted 3.5 percent for the down payment
- Be building credit history with credit cards, car payments, and/or making on-time rent and utility payments
- Own a FICO score of at least 580
- Look for homes within the FHA loan limits of desired location
- Apply for the correct FHA loan
Types of FHA Loans
Options for FHA loans abound. Applicants usually select a fixed-interest rate loan program, although the FHA also offers adjustable-rate loans. Commonly, buyers have applied loans with a 30-year fixed interest rate. These days, choices for fixed interest loans may extend only 10, 15, 20, or 25 years. Shorter spans reduce the total interest charges but increase payments.
If an applicant would like to begin the loan period with low interest payments, then the adjustable-rate loan may be best. However, the interest rate will go up at a specified time. This program works best for applicants with known future income, certain income such as an upcoming inheritance.
A government-backed FHA home loan is designed to assist homebuyers by offering low down payment options and credit allowances. By the way, the FHA programs are nicknamed Fannie Mae and Freddie Mac.
For information about FHA home loans in Colorado, contact Springs Home Mortgage today at (719) 470-0898.