FHA Credit Qualifications for a Home Purchase

When buying a home you can choose to get your loan through a conventional lender or you can
use the programs set up by the Federal Housing Administration. Both options have their own
unique set of pros for the homeowner, and both have unique cons. However, perhaps the biggest
pro to the federally insured loan is that you can qualify for one even if your credit and financial
history are in need of a tune up. Unlike conventional loans, you are not punished for having
financial setbacks. FHA credit qualifications are much more lenient which means you are given
the chance to rebuild your financial standing by having your loan federally insured. As
mentioned, there are cons to the federal programs, but if you are in a financial bind, this is an
option you may want to consider.

 

Poor Credit Not an Issue with FHA Credit Qualifications

HomeFederal Housing Administration loans carry a lot of weight with low and middle income families
because they take into consideration the financial burden that these families carry. FHA credit
qualifications are much more forgiving than conventional loans so these loans are often easier to
secure.
The benefits of using a federally insured loan are immediate upon approval of the loan. They
may not make the long term price lower, but they require less money up front which can be the
deciding factor when getting the home. Conventional loans require anywhere from 5% to 20%
down, depending on the lender. With a federal loan, if you meet the credit qualifications you may
be able to secure the loan and only be required to pay a minimum down payment of 3.5%. This is
a huge financial difference when you’re speaking in terms of dollars.
To qualify for the 3.5% down payment you will need to have a FICO score that is no lower than
580. This doesn’t mean that you won’t be able to qualify for a loan if your score is lower; it
simply means that you will have to put more money down on the house. Typically the number is
10%. But ten percent when compared with three and a half percent is a big jump and thousands
of dollars, so any steps you can take to improve your score will only be to your benefit. In fact,
some people choose to take extra time to rebuild their credit rather than putting more money
down. Other benefits to the federally insured loans include leniency when dealing with
bankruptcy and foreclosure, interest rates that compete in the real estate marketplace, and the
ability to use creative financing to pay the closing costs.

 

Limits within the Federal Program

While Federal Housing administration loans can help people get into a home, there are limits to
what you can and cannot do within the programs. These loans are targeted toward low and
middle income families so if an investor comes in looking to purchase a slew of homes, he won’t
be able to do it through the federal program. Most of us are looking to purchase a single family
residence, so this shouldn’t be a problem. Federally insured loans are limited to single family
residences with no more than four apartments, one of which must be occupied by the owner. This
is another requirement. You do have to live in the home if you purchase it through a federally
approved lender. In addition, there are limitations in terms of the amount of financing you can
pull out for the home purchase. These limitations vary from state to state, depending on the
average prices of the homes selling in the area. When you purchase through the federal programs you will also be required to pay a mortgage insurance fee up front when the loan is approved and
signed. It’s also not uncommon for your mortgage insurance premiums to be higher through the
federal program than they would be for a conventional loan.
What it boils down to is that there are pros and cons to all loan types, and there are even pros and
cons within the lenders that you are attempting to work with. If your financial standing is great
and your credit is good, a conventional loan might be your best option. However, if you are one
of the thousands of people who are dealing with imperfect finances, the FHA credit
qualifications may make it possible for you to get into the home that you dream of owning
without being declined due to financial setback.

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