Your body clock is ticking and you feel that you already need to step up and finally get a new home. You check your credit score and start to doubt whether you can jump again into another financial obligation or not. Worry no more, Federal Housing Administration (FHA) loan can get you covered. Here are some facts for you to fully understand how an FHA loan works:
1. Lower credit score requirement. Gone are the days when you would just sulk in the corner because you are pretty much certain that your loan will be disapproved. It is alright if your credit score is relatively low. You can still get a mortgage with credit scores between 500 to 579.
2. More affordable down payment. Reduction of down payment from 10 percent to 3.5 percent is a huge attraction of the FHA. Borrowers may use their own savings and other sources of cash, such as a gift from your kin, a state grant, or a local government assistance program.
3. Pay well, save more. This time around, try harder to keep your payments on time. As an incentive for your good payment record, your closing costs as a borrower (appraisal, credit report, or title expenses) may be covered by the home sellers, builders and lenders.
4. Eye FHA-approved lenders. Before you apply for a mortgage, keep in mind that not all lenders are accredited to FHA. Check first if the financial institution where you plan to do business with is approved by FHA.
5. Mortgage insurance to spend on. There are two mortgage insurance premiums that you need to pay when you get an FHA loan – the upfront payment and the annual premium. The upfront payment is 1.75 percent of the approved amount, which is paid when the borrower gets the loan. The annual premium, which is paid monthly, varies based on the length of the loan, the loan amount, and the initial loan-to-value (LTV) ratio.
6. Borrow cash for repairs. Another helpful feature of an FHA loan is its flexibility to provide a special loan product for borrowers who need funds for their home repair. This type of loan, called the 203(k), bases the loan amount not from the current appraised value of the home, but on the forecasted value once the repairs are finished.
7. Security blanket in tough times. Reality bites, there are some borrowers of FHA-insured loans who tend to experience serious financial hardship in the midst of making their repayments. FHA loans can help provide certain reliefs in the form of a temporary period of forbearance, such as loan modification that would lower the interest rate, extension of payback period, or deferral of part of the loan balance at no interest.