What are FHA Loans?
The FHA loans are loans especially created to deal with problems in the housing market.
When it became difficult for people to purchase houses due to economic recessions, the Federal Housing Administration (FHA) created the program to help people buy houses and keep the real estate market going.
The FHA mortgage is backed by the government office of the Federal Housing Administration which means that the government office backs the loan but does not provide the lending service itself, which service is still provided by financial institutions like banks and private lending companies. The benefit of qualifying for a government sponsored program is that they guarantee to the lender that the repayment will be guaranteed and there are policies that will provide them protection in the worst case scenario of a loan defaulting.
What are the benefits of qualifying for FHA Loans?
The benefits of a FHA loan are, but not limited to:
- Down payments are lower compared to conventional loans
- The interest rates of FHA mortgages are lower
- You can qualify even with lower credit scores
- You can qualify for a FHA loan even if you don’t have a credit history
- Private Mortgage Insurance rates are lower for FHA loans
- You can qualify for FHA loans even if you have high debt to income ratio
- Gift card payments towards the repayment are acceptable
What is the eligibility requirement of FHA loans?
Proof of Employment: To apply for FHA loans you will have to provide evidence that you are able to repay the mortgage amount as per the agreed terms. This will be done by providing your monthly salary stubs along with the contact of your employer (for verification). Additionally, you will be required to have completed a two year period in the service of your latest employer.
Proof of Residence: This requirement is to be sure of the borrower’s residence. It is easily fulfilled by providing your utility bills or lease agreements. A very standard requirement in almost all loans.
Primary Residence: The property being purchase should be for the purpose of a primary residence only, according to the guidelines provided by the Federal Housing Administration.
Credit Score: For traditional loans, you usually require a credit score above 600. For FHA Loans you can still qualify for credit scores of 500 and 580. However, the higher your credit score the lower the down payment you will be required to pay. If your credit score is 580 or above, you will be required to pay a down payment of only 3.5%.