The Federal Housing Administration is a great loan program for many first-time and repeat buyers. Simply put, this is a home loan program that benefits everyone given its very lenient standards. That’s not to say that the FHA upstages in all form of commercial mortgages, in any case. Given how difficult the economy can be for plenty, the FHA provides easier ways and means for a broader group of home buyers to purchase homes more efficiently.
How to Qualify for an FHA Home Loan
For those who are interested, these are the documents needed to be presented when applying for an FHA home loan:
- Names and location of your employers (past two years)
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Relevant information for all open loans
- Complete information for other real estates you own
- Approximate value of all personal property
- Current check stubs and your W-2 forms (past two years)
- Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals
There are several reasons for individuals resorting to an FHA loan as opposed to conventional ones. For beginners, one of the powerful features an FHA holds over its contemporaries is its required down payment. For anyone who reaches a FICO score of 580, one will need to put in a down payment of 3.5%. For those whose score is below that but at the very least touches the 500 credit score base will need to put 10% down. Still, these are already good deals compared to how much one would have paid with a conventional loan, which usually ranges from 5% to 20%.
FHA also permits its borrowers to pay for closing costs using gift funds entirely. If a homebuyer finds himself cash-strapped and unable to put in a down payment no matter how minimal, he or she may accept “gifts” from friends and family willing to finance their closing and other out-of-pocket expenses. In commercial mortgages, no such perk exists. What’s more, these loans are assumable. If a borrower decides to pass on the loan to someone else equally capable of taking on the financial duties, then this can be looked into and potentially approved.
FHA Mortgage Insurances
Generally, it’s best to know that the FHA does not give out money themselves. Eligible borrowers still need to work with a private lending company and have them process everything from application to funding. FHA’s main inclusion is to back up these mortgages to help lessen economic risks these lenders are exposed to. That said, borrowers will have to keep paying mortgage insurance up until the very end of the loan. Contrary to conventional loans where one can let go of mortgage insurance should he or she put in more than 20% of a down, this advantage isn’t present in an FHA loan.
Debt-to-income scales are also one thing that separates an FHA loan from a conventional loan. If you’re interested in getting an FHA mortgage, start by shopping for the best FHA lender now. They should be able to point you to the best programs and property locations that suit your unique needs.