Owning a home is exciting. You don’t have to pay rents anymore. And you become your own landlord. But buying a house for the first time is really difficult. You have to consider the location, the size, and the biggest of all the cost. If you don’t have enough money saved yet for purchasing a home for the first time, then a Federal Housing Administration (FHA) loan will be ideal for you. Especially if you have a good credit score, say of 580+, you’ll pay a down payment of 3.5% which compared to other loan programs, is quite affordable. Borrowers, however, will be required to pay mortgage insurance premiums to protect the lender should they default.
These loans came to be in 1930 after an increase in foreclosures and defaults. The aim was to make it easier for people to buy housing property while still protecting the lenders with adequate insurance. The state insures lenders who provide this loan so as to reduce their loss should a borrower default.
What Are The Requirements?
If you are interested in applying for St. Louis FHA loans, you must have a credit score of 580 or more to qualify to pay for 3.5% down payment. The good news is that a family member can gift you with the money. But worry not if your credit score falls shorter than that. You can still get this loan only that you’ll pay a down payment of 10%. Other requirements include:
• One must have stable employment history and must have worked for the same employer for at least two years
• One must have a valid social security number, be a lawful U.S resident and be of legal age
• Loans are available only to primary residence occupancy
• One should have an appraisal of their property as approved by an FHA appraiser
• One’s front end ratio that is mortgage + HOA fees, mortgage insurance, property taxes, and homeowners insurance, should not be above 31% of their gross income. Lenders should eliminate any possible risks before approving your request.
• The borrower’s back end ratio, which consists of all their monthly debt and expenses should be less than 43% of their gross income. But even with a high percentage of let’s say 50%, you may still get your loan approved.
• One should have stayed at least two years out of bankruptcy. But some exceptions can be made to at least one year, depending on the situation. And they should be able to prove that they have responsibly managed their money.
• The borrower should be three years out of foreclosure. But lenders can make some considerations if there were extenuating circumstances, and the borrower has improved their credit score. However, some exceptions like you were not able to sell the house because you were moving into a new place, will not be accepted.
• The property should meet a certain minimum standard during an appraisal. It’s essential that the home meets these standards because if it doesn’t, the seller will not agree to be responsible for the required repairs. Therefore, you’ll have to wait until closing for it to be repaired.
What are the Advantages of FHA Loans?
Low Down Payment
With these loans, borrowers pay low amounts of down payments, which makes most people to be eligible for them. A down payment of 3.5% is required for maximum financing which compared to other loans, this is quite affordable.
Not So Strict on Credit Score
You don’t need a perfect credit score to be eligible for this loan. Even a person with an average credit score can still apply and be granted an FHA loan. However, you should remember that your credit score determines the down payment you’ll pay. For instance, people with scores of 580 and above will pay a down payment of 3.5%. But for those with credit scores between 500-579 will be required to pay a down payment of 10%. So for individuals who have a low credit score, can’t afford a 20% down payment and cannot get approved for private mortgage insurance, FHA loans offer the best alternative for them.
It is an Assumable Mortgage
The best thing about this loan is that it’s an assumable loan, which means, if you want to sell the house you bought using this loan, the buyer can assume the loan you have. So even people who have faced a bankruptcy and a foreclosure before, or have low credit scores, are still qualified to get these loans.
FHA loans are federally backed loans available for first-time homeowners with average credit scores. They are issued by banks and lending institutions who will evaluate if you qualify for the loan. However, they do come with certain restrictions and loan limits, which aren’t mostly found in conventional mortgages. To find out tips on receiving this loan, click here!