Federal Housing Administration (FHA) loans are a type of mortgage with more lenient borrowing criteria, making them a popular choice for different types of buyers. Learn more about the benefits of a FHA loan to determine if this loan option is the best fit for your home purchase.
How do FHA loans work?
FHA loans are made by an FHA-approved lender and are insured by the Federal Housing Administration. That means that lenders can afford to offer more lenient terms, such as lower credit scores. There are many benefits to getting an FHA loan over a conventional mortgage.
You only need a low down payment
Gathering a down payment to purchase a home is one of the biggest hurdles that buyers face. However, with an FHA loan, you can apply with a down payment as low as 3.5%, rather than the traditional 20% which is out of reach for many.
You don’t need a perfect credit score
The next issue that buyers face is the credit score. Even with a healthy down payment, a poor credit score can make it difficult to get on the housing ladder.
One of the benefits of an FHA loan is the requirements are much more lenient. You can get an FHA loan with a credit score as low as 500. However, you are usually required to have at least a 10% down payment in this case. If your credit score is 580 or higher, you will only need to put down 3.5%.
In comparison, the typical requirement for conventional mortgages is a credit score requirement of at least 620, with a down payment as high as 20%.
You don’t need to be a first-time buyer
While FHA loans are certainly popular with first-time buyers, you can still benefit from FHA loan terms even if you’ve previously owned a home.
However, that does not mean you can have more than one FHA loan at a time. Unless you meet certain criteria, you will only be able to hold one FHA loan at a time. This is to prevent people from using them for investment properties.
So, how many FHA loans can you have? Get the specific details.
You’re not subject to income limits
With FHA loans there’s no income limit you’ll need to stick within to qualify. If you have a high income, you can still benefit from FHA’s low down payment and credit score requirements.
All you need to do is ensure that your debt-to-income ratio is no more than 43%.
Flexible co-signer rules
If you use a co-signer when applying for a mortgage, you will not be required to live with them. This gives home buyers more flexibility and allows them to get help from co-signers such as family members.
You can use gifted funds to cover the down payment
There’s no rule against using gifted funds as part of your down payment with an FHA loan. This opens FHA loans up to more people who have not managed to save a down payment on their own.
FHA loans are praised for their flexibility and accessibility to make homeownership a reality for those who would previously struggle to buy a home. Learn more about getting a FHA loan for a first-time home buyer.
For help and guidance on applying for your FHA loan, OVM Financial can provide that support. To continue your research on FHA loans, learn more about budgeting for FHA loan closing costs.