If you have a hard time saving with your low income, you can use the Federal Housing Administration for insured mortgages and get your dream home. You don’t even need to have a lot of money for down payment. The required down payment is only 3.5%.
Compared to conventional loans, FHA Mortgage Loans Corpus Christi, TX have more flexible income and credit eligibility guidelines. If you are strapped for cash, you can get down payment assistance to meet your down payment requirement.
Well, to help you with choosing FHA loans, here are some things that you should learn.
How does FHA work?
FHA stands for Federal Housing Administration. However, despite being a government agency, an FHA loan doesn’t mean that the government will lend you money. Nope. That is not the case. Instead, FHA loans will encourage lenders to provide home loans by insuring them.
Whenever a lender provides an FHA loan, it is guaranteed by the government. Doing so helps the lender cover his or her loss in case the borrower defaults. As a result, it lowers the risk for the lender, so they offer credit standards and terms that they don’t usually provide.
Borrowers with a lower income and bad credit can, therefore, get a loan and buy their own house.
FHA Loan Benefits
There are two primary benefits of getting an FHA loan.
Low down payment requirements
Your down payment can go as low as 3.5%, and that’s okay. Compared to other loans which require around $20,000 to buy a home worth $100,000, FHA loans make it possible for you to put down $3,500 instead and still get the beautiful house on the hill.
Good read: What Are the Benefits of an FHA Loan?
You can still qualify with a bad credit
You might have known too late that a high credit score is better when buying a house. Not only does it give you the privilege to get lower interest rates, but it also gets you pre-approved easily, too. With FHA loans, a borrower needs a credit score of around 580 to qualify. Now, that’s pretty good. Unlike other traditional mortgages which will require you 660 to 680 credit score, FHA loans make it possible for you to buy the right house.
FHA Loan Drawbacks
As there are benefits, there are also drawbacks to FHA loans. Indeed, this type of loan is not for everyone.
Compared to traditional mortgages, FHA loans will require a lot more paperwork. Considering your financial status, the maximum amount that you can borrow is also limited. This limit depends on each city and state. Aside from that, you can only obtain FHA loans from FHA-approved lenders and FHA-approved service providers. This limits your choices of lenders.
FHA loans have mortgage insurance premiums (MIP) added. This is required and calculated depending on your loan size, length of the loan and size of the down payment.
These MIP payments can increase your monthly payment by as much as several hundred dollars every month. It’s an unnecessary cost that you have to pay compared to traditional mortgages.
All in all, it is up to you if you want to choose FHA loans or traditional mortgages. Each has its pros and cons, so you better educate yourself and do your research.