Federal Housing Administration loans are a secured government approved mortgage that is beneficial to both the lender and the borrower. The borrower can get this loan without any difficult requirements and at an affordable interest rate. The lender, on the other hand, is covered by an insurance policy in order to avoid losing money in the case of the borrower not paying back their loan. Just like every other government-backed loan, FHA loans require a minimum credit score, proof of your income from any organization or company you are employed with, and an appraisal of the home in question. All of these criteria are set in place in order to ascertain the capability of the borrower to pay their loan within the stipulated time.
No Stellar Credit is Required
TO qualify for a FHA loan, you don’t need to have stellar credit. All that the borrower needs to have a minimum credit score of at least 580 in order to qualify. Any credit score short of this means that you’d be ineligible to qualify for the FHA loan. There has to be a sufficient credit record to serve as proof of your ability to pay up your loan as a borrower. Knowing your credit score before applying for an FHA loan is important and can be done via many online platforms or applications. In addition to this, there shouldn’t be any traceable record of bankruptcy and it must be proved that you are constantly up to date on your taxes. Failure to prove either of these may also make you ineligible to qualify for the FHA loan.
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The Borrower Doesn’t Make All of the Payments
The FHA loan marketplace is filled with several lenders, builders, and individuals looking to sell their homes. So, in order to attract buyers and borrowers, most builders and lenders offer to cover some costs – usually referred to as “closing costs.” Sometimes this cost may include the payment for the title of the home, payment for the home’s appraisal, or payment for a full credit report. However, the effect of these payments made by lenders and builders ends up being reflected in the interest rate charged after an agreement is made between the lender and the borrower.
Not Everyone Can Be a Lender
Having a home loan to give out does not automatically make you a lender. To be a lender under the FHA loan scheme, you have to meet certain criteria. When these criteria are being met, then you can become approved by the Federal Housing Administration. Once you’ve been approved as an FHA loan lender, you can charge different rates for a loan offered depending on the agreement reached with the borrower.
Will all of that said about FHA loans, let me quickly add that at this point the limits set for FHA loans vary on a yearly basis and are subject to the regulation of the umbrella body guiding the affairs of the FHA loan scheme. Also, the FHA loans have always come with several bonuses that have long made it one of the most attractive loan schemes for home buyers in the United States.
Bottom Line
FHA loans make great loans for first time home buyers since the requirements are not strenuous and the down payment is often low. You can also get some of your costs covered by the lender or builder. Do your homework and get a great deal, but know that not every lender is an FHA lender. If you would like to learn more about FHA loans, I recommend checking out the FHA loan website or reading this book on home loans Home Buying Kit For Dummies
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