What is it?
A Federal Housing Administration loan is federal government insured. It is issued through an approved bank or lender. FHA loans generally require a smaller down payment meaning that those with limited savings can still enter the housing market. Traditional loans often require a higher credit score than FHA loans.
How does it work?
The down payment required for an FHA loan is around 3.5%. As long as your credit score is around 580 or above you should qualify. However, even if your credit score is below this you may still be eligible as long as your down payment is higher.
The bank’s role is to loan you the money needed to buy your property while the government absorbs the risk. This makes it easier for loans to be approved for lower income individuals. One thing to know is that you will need to purchase mortgage insurance.
How do I know if it’s right for me?
There are many reasons why a FHA loan might be right for you. Perhaps you’re a first home buyer. FHA loans often suit those with a low or moderate income. However, these loans are open to everyone. Of course there are always multiple factors to consider when applying for a loan. So make sure you fully understand what you’re signing up for to be sure if it’s right for you.
This is how you qualify for an FHA loan
As with any loan, there are criteria you need to meet to be eligible for an FHA loan. Your credit score will determine the amount you will need for your down payment. The bank or lender will look closely at your financial history. This will include your payment history on any bills or debts you have previously had. You will need to prove you’ve had stable and sufficient income for at least two years. Also, the home that you are purchasing must be your primary residence. An FHA loan is not to be used for an investment property.
Obtaining a FHA loan could mean allowing you to get off the rent hamster wheel sooner. Instead of paying rent each month (money that you’ll never see again) you could be getting into your own house and begin to pay it off. With a lower credit score and a lower down payment, purchasing your home could happen sooner than you first thought possible.