Is it a good idea to buy a house with an FHA loan? Read the article and prepare yourself for the loan application process.
Buying a house with a credit score of 580 is attainable. It’s possible if you have an FHA loan with you. From young people to retired persons, the FHA loan programs are a go-to option. One of the reasons why the loans are so popular is that homeownership can be easily achieved. Millennials mostly face credit challenges and are unable to find a house of their own. The mortgage program takes them closer to their dream home. Despite the low closing costs and easy credit guidelines, one question still remains. Are FHA loans good?
The Federal Housing Administration guarantees the FHA loan programs. This means if borrowers default on the loan, the government will offer monetary compensation to the lenders. Therefore, the FHA does not offer you the money. It is the lenders who lend the money. The Federal Housing Administration encourages homeownership among future buyers who cannot afford to finance. Lenient requirements are expected from the FHA-approved lenders. Furthermore, you can put down as low as 3.5% of the loan value. Now, you should remember the mortgage is reserved for first-time buyers.
So, let’s figure out whether buying a house with 580 credit score in Houston is a good idea.
Low Credit Score Requirement
FHA loan programs are for credit-challenged borrowers. Typically, conventional mortgages consider a credit score of 620 as the minimum credit score. An FHA loan, on the other hand, asks for a credit score of 580. With this, you can apply for a 3.5% down payment. FHA loans have another credit score requirement – you can get a 10% down payment if your credit score is between 500 and 579. Pull your FICO score before getting through the mortgage application.
But there’s a Catch…
Less rigid requirements do not mean things are going too easy. A borrower needs to pay upfront FHA mortgage insurance which is akin to private mortgage insurance. Many lenders eliminate the cost if you put down 10%.
You can pay FHA mortgage insurance in these ways – a part of the monthly payment and a part of closing costs. The monthly payment differs depending on the down payment and loan term. It can be 0.85% or 0.45% of the mortgage amount. The FHA supports the authority through the loan premiums. These are used when a borrower fails to pay back the loan. Back in 2013, the FHA suffered, and this resulted in the programs being more expensive.
Is it a Good Idea?
The FHA loans are still affordable, and millennials in debt can make benefits out of it. Financial bumps might make it difficult to get a home loan, but FHA loans can sort out the issues. If you put down 3.5% of the loan value, it will be risky. So, you should see both ways before applying for an FHA loan.
In essence, FHA loans are helpful for many but can come with a few drawbacks. You should sit down with your lender before making a decision.