So, it is time for you to buy a home. FHA has become a name synonymous with first time home buyers in the United States, but many some things about FHA home mortgages may not be true, so we will explore this in this article. Maybe you are tired of paying rent, or maybe you need to move into a larger house. Whatever the reason, the FHA loan is a very good option for people who may have less than perfect credit to get a home loan.
The FHA home mortgage has been helping home buyers find affordable financing in the U.S. since 1934.
But there are quite a few myths about FHA home loans floating around on the Internet. Below are some of the most common myths that you should not listen to:
#1 You Have to Put Down a Big Down Payment
Wrong. The minimum payment for most conventional home loans is at least 5%. A down payment of 20% is standard. This makes people think that you have to put down a lot of money to get an FHA loan to buy a home.
In reality, you can get a home loan through FHA for as little as 3.5% down. Even better, FHA loan down payments can be funded by a gift from a friend or family member, so you can get into a home with little money out of your pocket.
There also are some state and local government grants available that can be used for down payment help with FHA loans. Find out how much of a home can you afford and meet the standards of FHA loan requirements.
#2 FHA Rates Are High
Who told you that, anyway? That is not true at all. It could be that people assume that rates on FHA mortgages have to be high because they issue loans to people with average or poor credit.
What people forget is that FHA guarantees the loan against default. If you do not pay the mortgage, the lender forecloses, and FHA reimburses the lender for a large amount of the outstanding balance.
That’s the reason that FHA mortgage lenders are willing to keep FHA interest rates low. How low? Oftentimes the rates are lower than conventional loans. Currently there are FHA loans available for 30 years at less than 4%.
That type of low, low rate makes a home affordable to many Americans.
#3 FHA Home Mortgages Are Hard to Get
Nonsense. You would be surprised how flexible FHA qualification criteria can be. You can technically have credit as low as 500 and still get an FHA loan. It will be harder, but it is possible.
For borrowers who have a credit score of at least 580, you may be able to get a 3.5% down payment as well. For those with 620 or higher credit scores, getting an FHA home mortgage is actually quite easy.
The most important thing that FHA wants to see is not perfect credit. It mainly wants to see that you are back on a financially sound footing, and have the income to pay the mortgage and your other bills. If so, you could very easily buy your own home sooner than you think.
#4 FHA House Loans Can Only Be Used for Single Family Homes
Incorrect. You can get a duplex or a triplex with an FHA loan. The only requirement is that you live in the property yourself. The FHA home mortgage is not for investment properties that you are not living in yourself.
#5 FHA Loans Only Cover the Price of the Home
Actually, you can get FHA home financing with the cost of repairs built into the mortgage. You can finance as much as $25,000 worth of home improvements through a 203k loan. However, you will need to check if your lender offers 203k loans. Not every lender has this option. Check with current FHA loan requirements.
#6 All FHA Home Loan Programs Are the Same
In reality, approved FHA loan lenders have different programs and different lending criteria. FHA allows lenders and brokers to have a certain amount of flexibility in what they offer consumers. FHA has been generous with down payment assistance programs over the years.
Some FHA lenders may be willing to take on more risk and will accept lower credit borrowers. Others may want only buyers with higher credit scores. It comes down to the risk the lender and its mortgage investors are willing to accept.
#7 FHA Programs Have All the Same Closing Costs
Closing costs will vary from lender to lender and state to state. It is true that some costs are relatively the same everywhere, such as the fee to pull a credit report. But you will find some variation in closing costs. And of course, closing costs are higher for higher mortgages.
#8 I Don’t Need Mortgage Insurance
You do now. Under current rules, you have to have mortgage insurance for the life of the loan, regardless of your equity in the property. That’s the reason that some people like to refinance out of an FHA loan once they have 20% equity in the home.
#9 FHA Mortgages Are Only for First Time Buyers
FHA loans are great for first time home-buyers. But they are great for a lot of people who don’t have 740-credit! Don’t think that you have to be a first time buyer to get a loan insured by the FHA. This government program even offers a FHA refinance with cash out for qualified borrowers.
#10 You Can’t Get an FHA Loan If You Declared Bankruptcy
This is one of the most annoying myths ever in the mortgage business. Whoever said you cannot get a mortgage for seven years after declaring bankruptcy or suffering a foreclosure needs help!
It is true that those negative credit marks stay on your credit report for seven years in many cases. But you can easily get a mortgage after two years of a bankruptcy.
If you want an FHA home mortgage, remember the above items are myths! FHA programs are easy to get and are a great deal for many Americans.