Shaping Your Financial Future

10 Facts You Need To Know About FHA Loans

24 November 2015 by Angie Wells

If you are weary of spending your hard-earned dollars on rent instead of building equity into a home of your own, a federal agency could have the solution you have been seeking. The Federal Housing Administration (FHA) has provided a pathway to homeownership for so many people for many years, and this valuable perk can make perfect sense for those who have despaired at ever qualifying for a mortgage loan. If you are searching for a loan program that makes it easier to qualify for financing, read on for the 10 facts that you need to know about FHA loans.

1. You don't need perfect credit to qualify for an FHA loan. You can qualify for a loan with a score of at least 580 and pay just 3.5% down. If you can come up with at least a 10% down payment, your credit score can be as low as 500.
2. FHA loans are assumable. When the time comes to put your home on the market, the buyer can "assume" the FHA loan, which means a quick and easy loan qualification for potential buyers and can help your home sell much faster.
3. Many banks won't lend to people with bankruptcies on their credit report. You can still qualify for an FHA loan if your bankruptcy is at least two years past the filing date. You may also need to prove that you have learned from your past financial mistakes by demonstrating a wise use of available credit (as seen on your credit report).
4. As long as it's been at least three years since your last foreclosure and your credit report reflects an improved use of credit, you can still qualify for an FHA loan.
5. Loan amount limits are in place and based on several factors, such as the area of the country, your credit history and your debt-to-income ratio.
6. Though FHA loans are often referred to as "guaranteed," the word guarantee in this instance means that the government will ensure that the mortgage lender won't lose any money on the loan if you default. This is a major benefit of FHA loans, since banks are more eager to lend money that is guaranteed to be repaid.
7. Since FHA loans require such low down payments, mortgage insurance is required. You can either pay the 1.75% upfront or have it "rolled" into your monthly payments.
8. You must show that you have had at least two years of steady employment for all loan applicants.
9. Your debts should not be higher than the guidelines; your new monthly loan payment, including mortgage insurance, property taxes (if paid monthly) and homeowners' insurance should not exceed 43% of your total monthly debt payments.
10. Your new property must pass an FHA appraisal, which will verify that the loan amount is in line with the appraised value.

With the help of this useful resource, the dream of owning your own home could come true. Visit a mortgage company like Commonfund Mortgage Corp today if you have questions.

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