Are you considering purchasing a home in the near future, but having a hard time deciding what type of loan to apply for? If so, consider yourself one of many people dealing with the same issue. Trying to understand the difference between various mortgage loan products can be confusing.
My suggestion: Take your time and research all of your options. By doing this, you’ll have a better understanding of what products and programs you qualify for. One that you may want to consider is a Federal Housing Administration (FHA) loan. According to Experian, FHA mortgages have helped over 40 million Americans become homeowners.
Here are five reasons you may want to consider applying for an FHA loan:
1. You aren’t required to put down 20%. If approved for the loan, you’ll be required to put cash down 3.5% of the price of the home. And given the increase in home prices, coming up with a 3.5% cash down payment should be more manageable than a 20% cash down payment. Money that has been gifted to you can be used for the cash down payment, as well.
2. Fixed mortgage rates. FHA loans come with fixed mortgage rates. Having a fixed rate may give you peace of mind knowing that when the next rate hike hits, your mortgage loan rate won’t be affected.
3. Easy to qualify. Because only a 3.5% cash down payment and low credit score are required, qualifying for an FHA loan will likely be easier in comparison to other mortgage loans.
4. Low minimum credit score. If we check and find you have a credit score of 580 or above (and a 3.5% down payment), you’re more likely to get approved for an FHA loan (please note that other factors such as credit history and your debt-to-income ratio are also factored into the approval process).
However, even if your credit score is lower, you may still be able to qualify with a 10% down payment. Additionally, you won’t necessarily be disqualified if you’ve had a short sale, bankruptcy, or foreclosure in the past.
5. 203(k) loan available for fixer-uppers. The FHA offers the 203(k) loan for homes that are fixer-uppers. A fixer-upper is a home that can usually be lived in but needs work (i.e. minor or major repairs, reconstruction). If approved, that means that you’ll be allowed to get a mortgage for the amount of the purchase price in addition to funds needed to improve and repair your home, since it will be your primary residence. That is a great option to have because you’ll have one payment that covers both the mortgage and repairs.
Overall, FHA loans are designed to be more flexible when evaluating potential borrowers for approval. Contact your local mortgage banker or visit www.hud.gov for additional information.
Purchasing a home is a huge financial responsibility and commitment, so it’s imperative to do your due diligence.
All content provided on the Bank of the West Change Matters site is informational. It is not financial, investment or tax advice. If you need financial, investment or tax advice, you should contact a qualified professional.
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