If you don’t have enough cash for a down payment on a home or have less-than-ideal credit, a Federal Housing Administration (FHA) loan may help. FHA loans give borrowers like you an advantage because lenders understand that the Federal Housing Administration insures your mortgage. Here are five things you need to know about FHA home loans.
They Have Lenient Qualification Requirements
You must have a credit score of only 500 or higher to qualify. It would be best if you had a debt-to-income ratio of 50 percent or less, and you must come up with 3.5 percent as a minimum down payment. These requirements are far less demanding than a conventional mortgage.
The Mortgage Insurance Can’t Be Canceled
Conventional borrowers who put down less than 20 percent on the down payment can cancel their mortgage insurance when they gain equity. FHA home loan borrowers who pay under 10 percent of the down payment must contend with an FHA mortgage insurance that lasts the life of the loan. However, you cannot cancel the FHA mortgage insurance unless you sell the home and it ceases to become your primary residence or refinance your home loan.
Fha Loans Can Be Used for Different Types of Homes
As long as the home is your primary residence, you can use an FHA home loan to purchase a manufactured home, a multifamily home, and a single-family home. You can’t use an FHA loan to buy a property as an investment. You must live in the home to qualify.
Loan Terms Vary by Lender
Individual FHA lenders are free to set their own rates and terms so long as they comply with the minimum requirements set by the FHA. Shop around for quotes and compare loan offers to find one that suits you best.
Fha Loans Can Provide Financing if Your Home Is Affected by A Natural Disaster
If you purchase a home in a presidentially declared disaster zone, the FHA 203(h) Mortgage Insurance for Disaster Victims program can finance the repairs or rebuilding of your home in case a natural disaster has damaged it. However, this aid is only extended to single-family homes, and applicants must raise a claim within a year of the disaster.
