What is an FHA Loan? It’s a mortgage loan that you apply to private lenders while the government insures it thru the Federal Housing Authority. If ever there is an event of a default, the government will pay the remaining balances to private lenders.
FHA advise the lender to give their applicants the chance to get approval for a loan because of its minimum standards compared to other types of loans. With minimal requirements, many first-time homebuyers apply for this loan.
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Applying for an FHA loan comes with a lot of benefits, and here are some of it:
Lower Standards
One of the great benefits of an FHA loan is it requires minimal standards. If you don’t have a good credit history, an excellent credit score, or you recently experienced financial misfortunes like bankruptcy, foreclosures, etc., you still have a shot on getting approved for an FHA loans Fort Worth. You only need a minimum score of 580 for your credit.
FHA loans guidelines state that you can apply for it even if you experienced bankruptcy from the past two years as long as you have a clean credit history. And when it comes to a foreclosure, you can apply after three years of the incident. These standards are lower compared to conventional loans which require four years with two years of decent credit history. You can have the opportunity of buying a new home with this loan.
Lower Downpayment
If you don’t have a lot of money for a downpayment, it’s okay. An FHA loan offers one of the lowest downpayment requirement along with VA Loans and USDA rural loans. Private lenders require a downpayment for as little as three percent when you apply for an FHA loan, not like other loans where they need a minimum of twenty percent. With lower downpayment, you can buy a new home for you and your family and eventually build up equity.
Lower Mortgage Insurance
When you get an FHA Loan, you also have to get mortgage insurance. But the mortgage insurance fee will also be lower compared to other conventional mortgages. Low mortgage insurance means you will have low monthly payments.
Higher Debt To Income Ratios
FHA loans have a higher debt to income ratio compared to conventional loans. If you have other debts such as car payments, installment loans, student loans, credit card payments, etc., you can still apply for an FHA loan. As long as your debts cover a maximum of41% on the back end and 31% on the front end of your monthly income. And if you have a perfect credit history and a good credit score you can have as high 50% on the back end. Conventional loans require 28% on the front end and 36 percent on the back end.
Good read: How to Set Up a Debt Repayment Plan in 6 Easy Steps
With an FHA Loan, many borrowers can have a new home with a lower downpayment, minimum standards, high debt ratios, and low mortgage insurance. An FHA loan gives you the opportunity to apply for a loan where you can actually afford to pay back.
