If you are looking to purchase a home, then you have asked yourself: Can I qualify for a mortgage? Your credit history and credit score are important factors that lenders consider when approving your loan application. Did you know that FHA loans have lower credit score requirements than conventional loans?
For example, an FHA purchase mortgage with a 10% or more down payment only requires a 500 FICO score. If you wish to make a smaller down payment, between 3.5% - 10%, then the FHA program requires a FICO score of 580. This requirement is considerably lower than for a conventional loan, which requires a FICO score of 620.
Remember, when shopping for a mortgage, lenders often have stricter requirements. They will consider not only your credit score, but also your overall credit history, the stability of your income, your overall debt and monthly debt payments, and the amount of down payment.
FHA Loans - Low Down Payment Mortgage
Are you considering buying an affordable home? Do you have enough money saved up for a down payment and cover closing costs? One significant advantage of an FHA loan is that you only need a down payment of 3.5% of your purchase price. For example, if you buy a $250,000 home, you need to show the lender that you have $8,750 available for a down payment.
Although 3.5% is a low down payment, perhaps you are having trouble coming up with sufficient funds? If that is the case, then a down payment assistance program may get you over the hurdle.
Almost all FHA loans require Mortgage Insurance payments, including upfront and monthly payments. Remember to shop around and compare offers.
Are you in the market looking to purchase a home? Bills.com offers valuable information to help you get prepared and qualify for a home purchase loan. According to Genworth Mortgage Insurance First Time Homebuyer Market Report from February 2019,
The private mortgage insurance industry helped 682,000 first-time homebuyers in 2018, which was 53,000 more than the FHA—historically the largest first-time homebuyer product.
FHA loans are a popular choice for homebuyers, especially first time home buyers looking for a low down payment mortgage. After the housing crash in 2007, FHA loans became a popular choice among home purchasers. In 2018, FHA purchase mortgage market share was 12%, compared to just 3% in 2007. Before you shop for a purchase mortgage learn about FHA loan requirements and how to compare them with a conventional loan.
FHA loan limits increased in 2019. HUD announces updated FHA loan limits each year. The loan limits vary by county. The basic maximum FHA limit for a single-family home is $314,827. The base limit is much less when compared to Fannie Mae and Freddie Mac's base limit, currently $453,100. In certain high-cost areas, FHA loan limits are as high as $726,525. FHA has even higher limits, up to $1,089,787, for Alaska, Guam, Hawaii, and the Virgin Islands. Approximately 82% of the counties fall under the standard base limit. Only 2% are in higher cost areas. Since the loan limits based on median home prices, the FHA loan limits cover most affordable housing, especially for first time home buyers.
Compare FHA vs. Conventional loans. FHA loans are popular purchase loans; however, they are not your only option. Learn to shop around and compare various loan programs including payment terms, fees, and rates. One important factor to compare is mortgage insurance premium and cancellation terms. For example, if you have a high credit score, then compare an FHA loan with a conventional loan. Both Fannie Mae and Freddie Mac have special high LTV, low down payment, purchase loans with discounted private mortgage insurance (PMI) premiums. Conventional loans do not have upfront mortgage insurance fees and come with termination clauses. Other special purchase mortgage offers include VA loans and USDA/Rural Home Mortgages
FHA purchase loans require mortgage insurance payments. The borrower is required to pay both an upfront fee as well as a monthly payment (MIP). You do not have to pay the upfront fee in cash. The FHA has strict rules regarding the cancellation of mortgage insurance. If the loan-to-value ratio (LTV) is higher than 90%, then the mortgage insurance is not canceled for the entire term of the loan. Lower mortgage insurance premiums can be a big incentive for borrowers with high LTVs and lower credit scores. For updated information check out the FHA Mortgage Insurance article.