FHA mortgage loans are extremely popular among first-time homebuyers. However, you do not have to be a first-time homebuyer to qualify for an FHA loan. These home mortgages are backed by the Federal Housing Administration, which enables lenders to provide financing to homebuyers with less-than-perfect credit and/or with a minimal down payment.
While an FHA mortgage may be the ideal solution for you, it is important that you understand how these loans work. Here are seven things you should know before applying for an FHA home mortgage.
1. Eligibility Requirements
Eligibility for an FHA loan is not as difficult as one might think. The home must be your primary residence. It cannot be a rental or second home. You must be able to prove you have a steady income and enough money for a down payment. In addition, the home must meet FHA standards. The amount you qualify for will be based on several factors, including your debt-to-income ratio.
2. Lower Credit Score
One of the best benefits of FHA home mortgage loans is that you can qualify even if you have less-than-perfect credit. It is recommended that you have a credit score of at least 580, but you can qualify for an FHA loan with a score as low 500.
3. Minimal Down Payment
If your credit score is 580 or higher, you can secure an FHA mortgage with a down payment as low as 3.5 percent. However, if your credit score falls between 500 and 579, you may be required to have a down payment of 10 percent. This is still substantially lower than the 20 percent that is often required for standard home mortgage loans.
4. Gift and Grants Allowed
If you do not have the down payment, the FHA does allow you to receive gifts of money from family and friends to cover this cost. The FHA also allows eligible homebuyers to secure state and local grants through various down payment assistance programs.
5. FHA-Approved Lender
If you are considering an FHA loan, it is extremely important to work with a FHA-approved lender. Only those lenders that are approved by the FHA can offer FHA mortgage loans.
6. Duel Mortgage Insurance
It is very important to understand that you are required to obtain duel mortgage insurances when obtaining an FHA home mortgage. The first type of insurance is your standard mortgage insurance policy. You will pay this premium on a monthly basis, and it is typically included in your monthly mortgage payment. The second type of insurance is an upfront mortgage insurance premium. This payment must be paid at the time of the sale and is usually 1.75 percent of the total mortgage.
7. Closing Cost Relief
Another great benefit of FHA loans is that it allows the seller to pay a portion of the closing costs. This will reduce the amount of money you are required to have upfront in order to purchase your home.
When purchasing a new home, it is crucial that you evaluate all your options before deciding what type of San Diego mortgage is right for your family. However, if you have a lower credit score and a minimal down payment, then an FHA loan may help you realize the dream of home ownership. Learn more about your mortgage options, by contacting our experienced loan officers at Bluefire Mortgage.