An FHA loan is one that is insured by the Federal Housing Commission. They are typically a
good choice for those with a low credit score or a limited budget.
While the loans are issued by private banks or other types of lenders, they are insured by the federal government. The down payment and terms of the loan appeal to many types of buyers.
So, is an FHA loan right for you? Use this road map as your guide to find out.
Who Is a Candidate for an FHA Loan?
The prime candidate for an FHA loan is a first-time buyer. This type of loan works well for individuals or couples who don’t have a high credit score or who don’t have much on record to contribute to a credit score.
An FHA loan might also be a good fit if you’ve had to file for bankruptcy or don’t have a lot of money in savings to use for a home purchase. Anyone who has trouble qualifying for a conventional home loan may find success when applying for an FHA loan.
What Can an FHA Loan be Used For?
An FHA loan can be used for several types of housing. That includes single-family homes, condos, multifamily units and some types of prefabricated houses, specifically those attached to a permanent foundation.
In some cases, an FHA loan may also be used for new construction to carry out renovations on a current home. You may also be able to use this type of loan to refinance a home.
Keep in mind that to qualify for any of these purposes, you must meet the government standards for securing the loan.
How is an FHA Loan Different From a Conventional Loan?
There are several differences to be aware of, which can help you guide you to choosing the one that’s best for you. An FHA loan is typically a good choice if you have problems with your credit score, whereas you generally won’t be able to qualify for a conventional loan if you have issues with your credit.
An FHA loan requires mortgage insurance, whereas a conventional loan may not. That’s because with an FHA loan, you may not be putting down a 20% down payment.
To secure an FHA loan, the property must undergo an appraisal and you could see some closing costs you wouldn’t see with a conventional loan.
Applying for an FHA Loan
If you’ve decided that an FHA loan is right for you, it’s important to know what to expect when you apply. You must have a credit score of at least 500 to qualify, as well as proof of U.S. citizenship, a social security card and bank statements for at least the last 30 days.
You will also need to provide proof of any deposits made during that time. If you are missing any
documentation, it may take longer to complete the application.
If you want to know how much you qualify for and how much your monthly payments could be, an FHA mortgage calculator can give you a pretty accurate estimate. Keep in mind that there are upper limits to the amount you can borrow with an FHA loan.
This amount varies based on the state, city and county where you’re buying and means that you can’t purchase a home that exceeds that amount.
An FHA loan may be a great choice if you have a poor credit score or if you have a limited credit score. It’s ideal for first-time homebuyers or those trying to rebuild their credit after a bankruptcy.
While there are guidelines regarding the use of an FHA loan for homebuyers, the perks make it possible for many people to get into the home of their dreams, despite their current financial circumstances.