Buying a home is one of the best investments you can make. In general, home prices trend up over time, meaning most homeowners make a profit off their investment. However, the one hurdle to homeownership is down payments. Saving up for a downpayment can be a timely and challenging goal. If you have a dream of homeownership but are struggling to save up for a downpayment, an FHA loan may be a viable option. Here’s a look at how FHA mortgages can help you become a homeowner.
What to Know About FHA Loans
FHA loans are mortgages that are only available to first-time home buyers and borrowers with limited funds for a down payment. These loans are insured by the Federal Housing Administration, meaning they are backed by the government and come with more flexible lending requirements than those offered by conventional lenders. Offered in both fixed and adjustable rates, FHA loans are easier mortgages to secure than traditional options. To qualify for the low down payment, your FICO credit score must be a minimum of 580. This low down payment option allows buyers to make a down payment as low as 3.5%. For reference, conventional loans typically require a downpayment of approximately 20%.
Another notable feature of FHA loans is how their mortgage insurance works. With conventional mortgages, homeowners are required to carry private mortgage insurance if their down payment was lower than 20%. Once they meet a 78% loan-to-value ratio, they can drop this insurance. With an FHA loan, homeowners are required to carry mortgage insurance premiums that they must carry until the mortgage is paid in full.
What Are the Eligibility Requirements of an FHA Loan?
To qualify for an FHA Loan, borrowers must meet the following requirements:
- They must be able to make a down payment of at least 3.5%. Note: Individuals who do not qualify for the low down payment option must make a downpayment of 10%.
- They cannot borrow more than the maximum loan amount designated by their state and county.
- The home and property must be approved by an FHA-approved appraiser
- The borrower must be using the home as their primary residence
- Your credit score must be above 500 for the loan and above 580 for the low down payment option
- You must have a debt-to-income ratio lower than 43%
These are some of the conditions you must meet in order to qualify for an FHA loan.
The Benefits and Cons of FHA Loans
FHA loans are a great tool for individuals with low-to-moderate- income levels, as they can help people afford a home by reducing the down payment. These loans are also available to individuals with mediocre credit scores and even those who have filed for bankruptcy in the past. Additionally, individuals with debt-to-income ratios that are too high for conventional mortgages can typically qualify for FHA loans. In short, they provide access to homeownership for certain groups that would otherwise not be available.
While FHA loans can be a great way to achieve your goal of homeownership, it is important to note that they come with a couple of drawbacks. Most notably, FHA loans typically have lower loan limits and result in higher mortgage and insurance costs than conventional loans. Ultimately, determining whether an FHA loan is right for you will depend on the specifics of your financial situation.
Contact a Skilled Debt Settlement Lawyer at McCarthy Law for Help with Your Mortgage Debt
If you are struggling with mortgage debt and don’t know the best approach for tackling your payments, it can be helpful to meet with a skilled debt settlement lawyer. At McCarthy Law, our attorneys are dedicated to helping homeowners navigate the complexities of mortgage debt. Our licensed attorneys negotiate with lenders to reduce the interest rate and balance of your debt. At the end of a successful negotiation, our clients pay only a fraction of their original loan balance.
To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.