FHA loans are the mortgage loans which are issued by the private lenders and backed by the Federal Housing Administration (FHA). The underlying aim behind the introduction of FHA loans is to help you increase your home ownership. With the help of an FHA loan, you can purchase a home even with a small down payment. Since the FHA loans are guaranteed by the federal government, lenders do not have to write off this loan in the event of default.
Anyone who meets the eligibility criteria can qualify for an FHA loan. There is as such no income limit to become eligible for this loan. Though no credit score limit has been set by the Federal Housing Administration, but lenders usually demand a credit score of around 620 from you to offer you an FHA loan. Here it is to be noted that credit score required to get approved for a conventional loan is around 720. The down payment amount required for an FHA loan is 3.5% of the purchase price of the house. Moreover, you should have a reasonable debt to income ratio (better than 29/41) to get approved for this federally backed loan. Anyways, because of comparatively low down payment requirement, no income restriction and relatively less credit score requirement, FHA loans are becoming increasingly popular. While taking out an FHA loan, you need to take into consideration the following factors.
For an FHA loan, the lender or the broker should be an FHA-approved one. The loan issuer should have proper certification. In order to find out your FHA lender, you can conduct an online research.
The down payment required to get approved for an FHA loan is comparatively low. It is only 3.5% of the purchase price of the house. Moreover, another important advantage of an FHA loan is that you can get the down payment amount as a gift. If you find it difficult to arrange the down payment amount, it is indeed a good advantage. You can arrange the down payment amount as a gift from your friend, relative or the employer.
Since the FHA loans are guaranteed by the federal authority, credit score required to become eligible for such loans is comparatively less than the credit score required to obtain a conventional loan. That is why FHA loans are indeed very popular among all types of home buyers.
Another advantage of an FHA loan is that you can take the help of a co-borrower to get the approval. If you are a college pass out and willing to take out an FHA loan but do not posses the required credit, you can take the help of your parent as a co-signer in the loan.
In order to get approved for an FHA loan, you need to produce all the documents proving your income. In fact rules pertaining to income are stricter in case of an FHA loan than in case of a conventional loan. You need to furnish documents for every penny that you earn.
These are the main factors that you must take into consideration while taking out an FHA loan. These will surely help you a lot to make the right purchase.