What Is An FHA Mortgage & Who Is Eligible?
Are you tired of renting and ready to set down roots in a home of your own? For many, the idea of home ownership is a sweet dream. Of course, buying a house isn’t quite the same as buying a television; it’s a bigger purchase and comes with more concerns that need to be seen to. Which means many families end up waiting longer than they’d prefer before buying a home. Getting finances squared away is vital when it comes to purchasing a home, but that doesn’t make it any easier. With the right home financing, you could get started down the path toward home ownership sooner.
As you probably imagine, finding a home loan is one of the biggest pieces to any home purchase. For those of you who are new to the home buying process, or who may not have been told this before, you are allowed to shop around! Home loans are not a one-size-fits-all product. There are a wide range of different home loan options available, with the idea that different loan qualifications can help individuals and families choose the loan that best fits their individual financial situation.
There are two options for choosing a mortgage: banks or mortgage brokers. Since the bank is the source of funds, they will often set their own rates and qualifications. However, banks may have more limited options in terms of types of loans offered. Mortgage brokers work with a wide range of different lenders, so they may be more constrained by loan qualifications, but they will have a broader range of options to choose from. To further support your endeavor to find the right mortgage, credit reporting agencies won’t ding your credit score if it’s pulled multiple times by lending institutions within a thirty day window. So what are you waiting for? Get shopping!
FHA Mortgage Loans
If you’re working toward buying your first home, an FHA mortgage loan could be the right option for you. The FHA loan insures money lent to qualified lenders by the Federal Housing Administration — thus the name of the loan. The FHA mortgage loan isn’t technically what pays out the loan; they simply provide the mortgage insurance so lenders will issue money to those with smaller down payments. It is designed to help people who fall on the low-to-moderate end of the income scale buy a home, which is a big part of what makes it great for first-time homebuyers in particular.
FHA mortgage loans allow borrowers to take out a loan even if they cannot make a large down payment. As of 2018, FHA requirements allow a qualified home buyer to borrow up to 96.5 percent of the value of the home, as long as their credit score is 580 or above. That means a borrower can buy a home with as little as 3.5 percent of the price as a down payment. Better still, the FHA mortgage loan allows all of that 3.5 percent down payment to come from gift money or grants. This is in stark opposition to most other mortgage options, which limit how much gifted money can be used, if any is allowed at all.
Who Is Eligible?
While the FHA mortgage loan is popular with first-time home buyers, that isn’t technically a qualification. FHA loan qualification is open to any potential buyers who meet their requirements, whether it is your first home or your fifth. The caveat there, however, is that the FHA mortgage loan was created to promote homeownership, so it is generally limited to loans used to purchase a primary residence, not for investment properties.
The basic qualifications for an FHA mortgage loan are: a credit score of at least 500 (with a 10 percent down payment for credit scores between 500 and 579), or at least 3.5 percent down with a credit score of 580 or higher. FHA mortgage loans can be used on traditional single-family homes, properties with up to four units, and mobile homes or manufactured homes (whether you own or lease the land).
Are you ready to learn more about your home financing options? Contact the Patriot Home Mortgage team to learn more about FHA mortgage loans, VA home loans, and all the other loan options we offer. Get started and find the right financing for your needs!