For FHA Mortgage Loan Shoppers we compiled some questions and tips to help you through the process.
What is an FHA Loan, and what steps does it take to qualify? How do you know if you qualify for an FHA mortgage loan? If you are looking for a starter home, a home to grow into, or you want to have a home built especially for you (using an FHA One-Time Close construction mortgage loan).
What is an FHA Mortgage?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+. However, borrowers must pay mortgage insurance premiums, which protects the lender if a borrower defaults.
The FHA program was created in response to the rash of foreclosures and defaults that happened in the 1930s. Providing mortgage lenders with proper insurance. With the goal to help stimulate the housing market by making loans accessible and affordable for people with less than stellar credit or a low down payment. Essentially, the federal government insures loans for FHA-approved lenders. Therefore, allowing Lenders to reduce their risk of loss if a borrower defaults on their mortgage payments.
Here are some tips to guide you through the process:
- Start early, that’s the best advice especially for first-time buyers looking to buy a house with a mortgage loan. For starters, it means planning to apply for the home loan when you have 12 full months of on-time payments with no late or missed bills. Some may struggle with this notion, but it’s one of the realities of home loans. You will want to see your credit reports and make sure there is no old, wrong, or incorrect information in it. And while you are taking this time to prepare. Simply, allow yourself time by saving up for a down payment will be a priority.
- FHA home loan rules say maximum financing requires a 3.5% down payment, but if your FICO scores are marginal you may be required to put as much as 10% down. Worst case scenario you may want to anticipate being required to pay 10% down just in case. Allowing you the option for a plan to use the excess funds for other home loan related expenses when financing is approved. Making a larger down payment can also be used by borrowers with good FICO scores as a bargaining chip in other areas of the mortgage. A higher down payment could equal lower costs over the lifetime of the loan, as well.
- The time is now to start making your financial plans! Create a budget now to see how your mortgage loan payment will affect your financial bottom line. Even if you are on the FICO border, this still is a very good idea to do far in advance. When you submit your loan application, the lender will be doing the very same thing. You will want to know what your lender is about to find out. Allowing you to make any adjustments you need in spending, saving, future plans and any unexpected personal expenses.
Talk To A Reputable Lender
Talk to a participating FHA loan officer about your home loan goals and plans. See if there are things they can suggest to help you fully prepare. You may be in a position to obtain a Pre-Approval!