Planning on getting an FHA loan for a house but aren't quite sure which of the things you keep hearing are true? In this blog, we'll debunk the top seven myths about FHA mortgages so that we can help you gain a better understanding of this financing option.
“FHA loans are given by the government.”
FHA loans are NOT given directly by the Federal Housing Administration. The FHA simply provides mortgage insurance to protect private lenders from delinquent borrowers.“FHA loans are only for low-income borrowers.”
Most people believe that FHA loans cater only to low-income home buyers or to those with credit scores below 600, but this is not the case. While they were originally intended for lower-income borrowers who are likely to find it difficult to qualify for a conventional mortgage, FHA loans are also available to anyone who meets the qualifications set by the Federal Housing Authority.“FHA loans are offered only to first-time home buyers.”
First-time home buyers comprise most FHA mortgage beneficiaries simply because they are the ones most likely to take full advantage of FHA loans' low credit and low down payment requirements. But even if you're buying your second third or even fifth home, you can still qualify for an FHA loan.“FHA loans are for borrowers with bad credit.”
It's true that FHA loans are popular among borrowers with less-than-perfect credit scores since the FHA allows home buyers with credit scores below 580 to apply. Based on FHA standards, a borrower with a credit score of 580 or higher qualifies for a down payment as low as 3.5%, while a borrower with a credit scores between 500 and 579 will have to provide at least 10%.“It is difficult to qualify for an FHA loan.”
The process may be quite tedious because of lenders that impose stricter guidelines - but don't let that turn you off. A lot of qualified lenders are still willing to go easy on first-time home buyers especially on those from underprivileged neighborhoods. Borrowers with lower credit scores, as well as those who have filed for bankruptcy in the past still have a real chance at qualifying. As long as you have maintained good credit since your bankruptcy discharge and have the proper documents in place, your chances of qualifying are still high.“FHA loans are cheaper than conventional mortgages.”
There are a lot of advantages to getting an FHA mortgage, including those mentioned above, but conventional loans also pose numerous benefits for certain borrowers and situations.“I can't get an FHA loan without a credit score.”
Actually, you can. The FHA is made available to borrowers without an existing credit history, but the requirements may be a little tougher to meet.
Still, there are a lot of ways a borrower can show proof of reliability, such as a history of on-time payments which include utility bills, rents, student loans, etc. Showing at least a year of on-time payments should do the trick. If you are approved, you can even get maximum financing with a 3.5% down payment.