Not Just A Dream: How An FHA Loan Can Help You Become A Homeowner
Nearly everyone dreams of someday owning their own home. Rents are at an all-time high, and to make matters worse, the rent money you pay is going straight to your landlord's pockets, instead of building valuable equity in a home of your own. If, like many, you have despaired of ever owning a home, the Federal Housing Administration (FHA) offers a loan program that was custom-made just for people like you. You may be able to qualify for this program, even if you have little-to-no down payment and less-than-perfect credit. For a quick primer on FHA loans, read on.
1. Lenders require that borrowers have good credit before they lend to them. Your credit score is a major indicator to lenders of your ability to repay a loan, and most require high scores. A score of 720 is considered an "excellent" score by most lenders, putting a home loan out of reach for many. But even if your score is considerably lower, you are still in luck. The FHA offers loans to people with scores as low as 500, if you can also come up with a down payment of at least 10% of the home's price. Additionally, if your score is at least 580, you may be able to qualify for an FHA loan with an even lower down payment of only 3.5% of the purchase price.
2. Bankruptcies are an unfortunate fact of life for some people, and the presence of a federal filing on your credit report can make a traditional mortgage loan approval difficult, if not impossible. The FHA understands that sometimes financial obligations can become overwhelming and that the decision to declare bankruptcy is not an easy or impulsive one to make. Fortunately, you can still qualify for an FHA loan as long as your bankruptcy was at least 2 years ago (from your discharge date). It's important to note that your more recent use of credit must show that you have learned from your mistakes and have made an effort to pay debts on time and to use credit wisely.
3. FHA loans can help sweeten the deal for lenders, thus making them more likely to loan you money. FHA loans are considered "guaranteed." This means that if the borrower does not pay the loan as agreed, the lender won't lose any money in the deal. The FHA, which is a federal agency, will ensure that the loan is paid, no matter what. This obviously makes you, the borrower, look more attractive to a lender when you use an FHA-guaranteed loan. On a related note, FHA loans are assumable. This means that if you sell your home, the buyer may be able to qualify to assume the mortgage.
For more information about this valuable resource for getting your new home financed, contact a real estate agent such as ERA Key 1 Realty Inc.-Cindy Frank.