What can you do if you cannot afford to buy your own home? Then you should start thinking of getting a loan. However, most conventional loans may still become unaffordable, especially if your credit performance is nowhere near excellent. It gets worse when you’re just earning an average income. So what should you do?
If you think your current financial standing isn’t going to bring you closer to your dream, then you should learn more about FHA Loans.
So, what makes this type of loan different from conventional loans?
FHA loans are still provided by different financial institutions. The only difference is that the Federal Housing Administration insures loans made by the qualified borrowers. In case of default in payments, the government will absorb the loss of the lending company.
Aside from that, they are not that strict as to who can qualify for the loan. Even if you have history of bankruptcy or foreclosure, you will still get loans with good rates. To know if you are qualified, check out their conditions below:
- You must have a steady or rising income for the past 3 years. Any debts due within those periods must be paid or settled accordingly.
- You should be capable of making a down payment of at least 3% of the purchase price.
- You should be able to afford to make payments, which is equivalent to 30% of your monthly income.
- You must have at least 620 for your credit scores to be approved easily.
- If in case you have been bankrupt, application should be done 2 years after; provided that you have been responsible in making timely payment from the time of discharge of debts.
- If in case you have had history of foreclosure, it should be at least 3 years old; provided that you have made timely payments for 3 consecutive years prior to application of loans.
As you can see, there is a huge difference from the conventional loan qualifications. The waiting time for those who have undergone bankruptcy and foreclosure is longer. And low credit scores are acceptable.
In terms of the property, FHA loans have their own qualifications. Before you can purchase the property, it must undergo an FHA appraisal. This is not your conventional appraisal (wherein only the value of the home that is ascertained). The appraisal would involve a thorough inspection to ensure the property is in good condition. Once everything is good, it will receive the stamp of approval from FHA and you will also be allowed to purchase it.
Many people have already discovered the benefits of FHA loans. One need not to worry much about raising their credit scores up before they can get loans. However, this does not mean you can miss payments already. Doing this could forfeit your chances of getting the loan.
This loan also lessens your down payment. 3% percent is very low compared to the usual 20% requirement. Moreover, you do not even have to get a private mortgage insurance if make this kind of payment.
Finally, the great thing that you can get from FHA loans is that you can pay-off your debts whenever you have the money. You do not have to wait for you loan term to end before settling the debt. Plus, you will not be penalized for making the prepayment.