The mere thought of purchasing a home can either be exciting or daunting for everyone. Sometimes it’s both, but most of the time it’s the latter! It’s intimidating to look at the harsh numbers that involve making mortgage payments, but it’s a necessary and responsible step if you’re looking to be a certified home buyer or property owner.
Various loans are available for your perusal, but today we’ll be discussing the Federal Housing Administration (FHA) loan and why this could be the ultimate answer to your housing loan dilemmas:
Reason #1: You Can’t Make the Down Payment
Down payments mean shelling out a big chunk of your money. Typically, you’ll be required to make at least a 10% down payment, with many lenders requiring as much as a 20% downpayment. If you don’t have enough cash to put down on a property, an FHA loan may be a better option.
When applying for an FHA loan, you also have options for acceptable sources of down payment such as personal savings, gifts from family members, and approved government down payment assistance programs. Thanks to this loan, you can put down as little as 3.5% on a home.
Reason #2: You Don’t Meet the Minimum Credit Score
The minimum credit score required for a typical mortgage is 620, although particular lenders may set even higher requirements. Meanwhile, to protect themselves during times of economic instability (i.e. COVID-19 pandemic), you will find that lenders will tighten their criteria and set higher credit score limits.
FHA home loans are advantageous since they have significantly lower credit score criteria, qualify credit scores of 580.
Reason #3: You Have Filed for Chapter 7 Bankruptcy
Filing for chapter 7 bankruptcy can have a long-term negative impact on your credit. In most cases, you’ll need to wait at least four years after a chapter 7 filing to qualify for a conventional mortgage.
Fortunately, after only two years of a chapter 7 bankruptcy, you may already qualify for an FHA loan. However, to obtain a mortgage shortly after chapter 7, you must first rebuild your credit and avoid incurring new debt. You also need to reestablish excellent credit or opt not to incur new credit commitments, as well as prove your competence in handling your finances.
Conclusion
One significant disadvantage of an FHA loan is the requirement to pay upfront mortgage insurance premiums. This is often done to safeguard your lender in the event that you fail to make payments. In addition, you’ll have to pay monthly insurance payments, which will raise overall costs.
If you don’t have a lot of money for a down payment, your credit score isn’t excellent, or you want to purchase a home soon after filing for bankruptcy, an FHA loan may be a viable option for you. Someone in a tight spot financially can definitely benefit from the flexible terms of this type of loan.
As with mortgage-hunting, take your time to look around with multiple FHA lenders to discover which one results in the most amount of savings for you. This way, you’ll be able to make an informed decision after comparing offers.
Do you want to apply for the FHA loan in Cumming, GA? PENNIX Mortgage will help you with all your purchasing or home refinancing needs! Reach out to us for the best loans at the lowest rates possible today!
