Many people assume that they won’t qualify for a mortgage unless they have a minimum of 20% of the purchase price to put down in cash, have great credit, and have a lengthy and stable employment history. Although much of that is correct for conventional loans through private mortgage lenders, it is not necessarily true for loans backed by the federal government: FHA loans, which get their name because they are backed by and offered through the Federal Housing Authority, a federal governmental agency.
FHA mortgage loans can be a great option for young borrowers who are just starting out and have solid employment but not a lot of money saved up and sacked away for a home purchase. They are also a great option for an otherwise qualified home buyer who has had some trouble with their credit history, and has a lower credit score than the 720 or above most desired by private mortgage lenders.
If you’re looking into buying a home and have either less than perfect credit, or less than a 20% down payment, here are 3 great reasons why you should look into an FHA loan!
While your conventional mortgage lender will likely be looking for you to put down at least 20% of the purchase price of your desired home to avoid private mortgage insurance (PMI), FHA loans offer mortgages requiring as little as just 3.5% down. Additionally, the FHA allows you to obtain that down payment from sources that a conventional mortgage lender typically frowns on, including as a loan from a family member, or a gift from a charity.
If your credit history isn’t perfect and your score isn’t above 700, you can still qualify for an FHA mortgage. Many first-time home buyers are otherwise qualified to buy a home, but their credit score keeps them from qualifying for a conventional mortgage loan. FHA loans may be extended to borrowers with scores in the upper 500’s and above, which makes it easier for many people to qualify for an FHA loan over a conventional mortgage loan.
Are you interested in a home that requires substantial updates, upgrades or repairs, but don’t have a lot of money on hand to make those repairs immediately upon moving into your new home? There are several federal government programs which can aid home buyers who are buying fixer-uppers. Some FHA-insured loans will allow you to take up to an additional $25,000 on top of the home’s purchase price for repairs and improvements to the property, which will all be wrapped up into one convenient loan.