Aside from being one of the most accessible and affordable home mortgages available today, the convenience of applying for FHA loans online attract first-time and repeat homebuyers alike. But before you start qualifying for this particular online home loan, let’s get to know it better first.
A Brief Introduction to FHA Loans
The Federal Housing Administration is the government agency behind FHA mortgages; thus, the name. Over a couple of decades ago, at a time when the U.S. housing market was at an all-time low, the FHA loans were created to open more financially-manageable homeownership options for the average American.
Today, FHA loans are among the best alternatives for those who find the 20% down payment of conventional mortgages too steep, or their elevated credit score standards unattainable.
The loans, however, are not issued by the FHA itself. The agency only guarantees the loans originated by FHA-approved lenders to minimize the risks, should a borrower default.
Best Features of the FHA Home Loan
Many home buyers find themselves unable to qualify for conventional loans for two reasons. Their credit standing isn’t up to standards or they can’t afford the financial requirements of the loan.
FHA mortgages have the solution to these two common roadblocks to being granted a home loan. By lowering the credit score and down payment requirements, more people can benefit from the program and start their homeownership journey.
Credit and Down Payment Requirements
One of the best things about the FHA loan is the 3.5% down payment rate, which is significantly more affordable than the usual 10-20% of traditional loans. For applicants to take advantage of this very low downpayment option, they need to have a credit score of 580 or higher.
Technically, applicants with credit scores between 500 – 579 may still qualify for the loan if they agree to put up a larger amount – around 10% of the property’s value – upfront. However, borrowers with credit scores this low are often advised to apply again after they have improved their ratings.
Another great thing about FHA loans is “down payment gifts.” In case the borrower can’t put up enough money for the down payment and closing costs, a family member or sponsor can step in and contribute funds to cover a portion of the deposit. The seller is also allowed to shoulder a part of the closing costs.
First-time home buyers should also look into government grants and assistance programs specially designed for them.
Should you go for it?
Overall, the FHA loan presents itself as a feasible alternative to traditional loans. Just in case you want to go for it, one important thing that you need to know is that it comes with a mortgage insurance premium that you’ll have to pay for every month until the end of your term. The insurance will definitely cost you, so make sure to weigh your options well.
If you need more information about the FHA loans, best contact a trusted FHA lender in your area.