Dreams are the fuel of life and every American is proud to hold this sentiment dear. So being in the lower income bracket won’t necessarily end the dream of purchasing your own home. An FHA loan is the answer!
What is an FHA Loan?
An FHA loan or Federal Housing Administration Mortgage Insurance Loan is a kind of federal assistance offered traditionally to those Americans on a lower income. It helps them both to borrow money and enables them to buy a home they would not normally be able to afford. The actual loan itself is provided by an FHA approved lender, and there are many of those on the market. In simple terms the FHA insures those loans given by private lenders, thus lowering the costs of a mortgage. The scheme has proved greatly popular across America in recent years, though they’ve been helping people in the housing market since 1934!
SO What are FHA Loan Requirements?
First of all you need to demonstrate two successive years of employment preferably with the same company so there’s a consistency there. Secondly you need to know the payments on the house you purchase will amount to 28 per cent of less of your monthly income. Some lenders will ask for evidence that you’ve saved up for a down payment, and your credit report should show there are no more than two payments more than 30 days late. Those who have lower credit scores are eligible but the FHA will also consider some individuals who do not qualify for other types of loan. The good news for bankrupts is you can still be considered for an FHA loan if you’ve had a break of two years. But you really need to have had a good credit score before the bankruptcy! It’s also important to note a mortgage insurance premium or MIP for short, equal to one per cent of the total loan amount is needed. This is paid by the lender to the FHA on behalf of the client. Oh and you’ll need to submit two years’ worth of tax returns!
What Features Does an FHA Loan Have?
The great thing is these loans make life much easier for first-time buyers. A relatively low down payment is required and they provide flexible credit guidelines. Any potential lender will assess potential home-buyers for risk. They come up with what is called the debt-to-income-ratio, and depending on its size a monthly premium might also need to be paid. The home you can buy will also rest on monthly income and expenditure! FHA loans can also be very competitive and more often than not carry great rates.
What If I Have Very Little or No Credit History?
This can happen to a great many individuals through no fault of their own, and so there are provisions for this also. The FHA will let a blood relative co-sign for the loan without the relative needing to live in that same home with the first-time-buyer. We call this a person Non-Owner-Occupied Co-Borrower and depending on what American state you reside in, a discount in your state transfer taxes could be forthcoming.
Note: you may find interest rates increasing or decreasing over time. This helps individuals to either buy or refinance their home at a much lower rate of interest initially!
‘The FHA asks that ex servicemen submit the DD Form 214-or official Armed Forces discharge paperwork-along with the FHA loan application paperwork. You can ask the Department of Defense for the form.’
So How Do I Apply for an FHA Loan?
You’ll firstly need to gather all the required paperwork together before applying. This will make life much easier during the process. You can formally apply either online, over the telephone or in person if you so wish. You’ll also need evidence of a social security number. There are also several FHA loan plans and their website carries all the necessary information. Make a note:
Important Things to Note:
The FHA scheme is also there to encourage any lenders to avail these loans to more credit worthy applicants and project borrowers not able to meet more conventional requirements of underwriting. You’ll also find very few lenders willing to provide the money for FHA Loans to potential purchasers who have a FICO credit score below 640, so it’s advisable to double check your credit report before embarking on the process. And don’t forget to make a list and go through your income and expenditure – have all the facts at your fingertips!
If the dream burns brightly enough then it’s always possible to make it come true. Owning your own home even if your income is at the lower end can become a heart warming reality thanks to a very special FHA Loan!