The Basics of an FHA Loan that You Should Know
There are some basics of an FHA loan that you should know about before jumping into one. An FHA loan is a loan that is insured by the Federal Housing Administration that is popular for many borrowers. It allows you to purchase a home with a small down payment and it’s intended to promote home ownership.
Why an FHA Loan Is So Great:
The FHA loan is a great way to get qualified for a mortgage, but it’s not for everyone. If you fail to repay your mortgage, an FHA loan will be there to pay the bank off. Many banks like this type of loan because they are more willing to give large mortgage loans vs small loans through other programs. Just keep in mind that all good things don’t come easy.
Pros of an FHA loan:
√ Low down payment – You can usually get an FHA loan with as little as 3 ½ % down.
√ Prepayment penalty – No prepayment penalties with an FHA loan.
√ Starting over – If you have recently come out of a previous foreclosure or bankruptcy, you will find it easier to get an FHA loan.
√ Home improvements – You can use certain FHA loans to pay for home improvements.
√ Qualification – It’s easier to qualify for than many other loans.
Getting Qualified for an FHA Loan:
There are no income limits to qualify for an FHA loan; however, you will have to show that you can repay the loan amount if your income is on the low side. Your debt to income ratio will need to be in accordance with having more income than you have debt. For example: your debt to income ratio should be set so your income is at least 35% of your mortgage payment or better. 55% is more ideal for a lender. Also, your credit score should be over 580 if you want to put down less than 4%.