The mortgage industry is a tricky place to maneuver especially if you don’t have the advantages that come with a high income and above-average credit score. Many hopeful homeowners have had their hopes shattered by mortgage companies who would not grant them conventional mortgages because of their financial and credit status. Thankfully, the government was able to come up with a solution that makes home ownership more manageable than usual through the FHA home loan.
The FHA Loan
The FHA home loan program operates under the sponsorship of the Federal Housing Administration, which is an agency of the United States Department of Housing and Urban Development. The idea behind the program is to guarantee the loans that approved lenders offer under the program, which in turn allows the lending firms to lower the qualification standards and ease on the approval process.
The FHA home loan, however, is not without pre-requisites. Although when compared to conventional loans, the requirements are more lenient, making it a favorite among newbies. FHA and first-time homebuyers are often linked with each other and for apparent reasons. There are not many loan options for people who don’t have established financial and credit histories.
Benefits of the Loan for First-time Homebuyers
- Down Payment
This is where the FHA home loan holds a significant advantage over the conventional loan. When you apply for a traditional mortgage, you’re likely to shell out 10 – 20% of the total purchase price of the property for down payment. With the FHA loan, you’ll only need 3.5%, which is less than a quarter of the usual 20% rate. Moreover, the fund for the down payment and the closing costs don’t have to be from your pocket. Relatives, friends, the lender, and the seller can contribute to the deposit and closing expenses if they wish to do so. There are also available down payment assistance programs and grants exclusive to first-time homeowners.
- Credit Score
Conventional mortgages commonly require a qualifying FICO score of 680, which is quite lofty for many people and even more so for those who are still on the process of building their credit portfolio. As plenty of first-time homebuyers are yet to establish their borrowing reputation, many of them are not approved due to poor credit scores. The FHA loan has a relatively lower qualifying FICO score, which is 580.
- Source of Income and Employment
FHA loans do not qualify applicants based on how much they earn. The borrower does not have to meet any income threshold as long as they can present enough proof of their ability to pay for the mortgage, which includes, but is not limited to, stable employment with the same company for a minimum of two years.
The FHA loan is an excellent place to start, not just for first-time homebuyers but also for anybody who has encountered difficulties with other mortgage options due to funding and credit-related reasons. The fastest way to check your getting granted a loan is by pre-qualifying with FHA approved lenders near you. Many households in the United States have benefitted from the FHA loan; maybe you will too!