FHA loans are applied for by multiple millions of U.S. homebuyers. Why are FHA loans so popular? First of all, these loans are accessible to borrowers with less-than perfect credit. Secondly, an FHA loan is insured by the U.S. federal government, which encourages lenders to approve these loans with more lenient terms.
Are you purchasing your first home but need some assistance with your down payment? Do you have a sub-par credit rating but your employment and residential histories support your creditworthiness? Financial institutions are much more likely to consider borrowers experiencing multiple types of financial hardships when they apply for an FHA loan. Continue reading about FHA home loan rates and more below.
The purchase of a home is one of, if not the most significant investment you will ever make. This is true for most U.S. consumers, especially those who purchase multiple homes over the course of their respective lifetimes.
Most mortgage lenders require a potentially unexpected twenty-percent down payment when approving applicants, however. High down payments are unaffordable for some homebuyers in modern times. Thankfully, helpful options in the form of FHA loans are available.
The Federal Housing Administration (FHA) is a division of the U.S. Department of Housing and Urban Development (HUD). FHA-backed home loans help low-income borrowers, or borrowers with sub-par credit purchase the home of their dreams. FHA-approved lenders offer more lenient credit score (FICO), income-based and general loan terms because they know their loans are insured by the federal government. This works because FHA-backed loans are guaranteed repayment assurance by the government even when a borrower defaults.
Essentially, lenders face less risk of losing their money. Different types of FHA or government-sponsored home mortgage loans exist, although all serve a similar purpose – to reduce the financial burden of purchasing your home.
Reduced down payments are one way FHA loans lessen your financial burden. Typical down payment requirements are calculated based on your loan type, FICO score and lender policies. Other factors might also apply. For example, first time homebuyers often qualify for additional mortgage-related incentives as an encouragement to invest in the U.S. housing market and economy.
While traditional mortgage loans typically require up to twenty-percent of the purchase price as a down payment, FHA loans commonly require as little as a 3.5 percent down. This type of up-front savings makes the difference between purchasing a home or not for many prospective homebuyers around the country today. Your down payment amount is also influenced by your FICO score.
When your FICO score is higher, your down payment requirements will be more favorable for you. When you have a low FICO score, you will likely be required to provide a higher down payment. Each lender sets its own policies in addition to following government guidelines and regulations. Be certain to ask your chosen lender about its policies before committing to any loan programs.
The process for securing a home mortgage loan is explainable in four basic steps. First, comparison-shop for the best lender available for your needs. Next, take advantage of pre-qualification options. Pre-qualifying pulls only a soft credit check, which neither lowers your FICO score nor appears on your credit report.
After you are pre-qualified, find an affordable home based on your pre-approved loan amount. Finally, have your chosen home appraised, inspected and approved by your lender to secure your funds.