texas fha loanMany people have dreamed of becoming a homeowner at one point, but then decided against it when they realized how heavy of a burden it is financially. The process of qualifying for a mortgage, in itself, is already a challenge. A lot of hopeful applicants have had their hopes crushed by lenders who won’t consider their loans due to their low credit scores and poor financial situations.

But there is always another way. Conventional loans are not the only option.

What’s the alternative? FHA Mortgage

The FHA Loan takes after the government agency responsible for its existence, the Federal Housing Administration, which operates under the U.S. Department of Housing and Urban Development. The FHA’s goal is to improve the overall housing situation in the United States by providing better and more accessible mortgage loan programs to its citizens. To achieve this end, the agency works with FHA-approved lenders across the country by guaranteeing loans issued under the program. The result is a more affordable and less stringent qualification process for people who wish to obtain a home loan under the FHA initiative.

To qualify for an FHA loan, the borrower must meet three fundamental criteria among others: credit score, income, and down payment.

The FHA mortgage requires a lower credit score than that of  the traditional mortgage. Borrowers don’t have to stress out about having excellent credit ratings because a 580 is enough to qualify for the mortgage. As the case may be, most lenders still recommend that applicants maintain a higher FICO score than the required minimum for a faster and easier approval process.

Concerning salary limits and source of income, the FHA loan does not have a set income qualification threshold. What the program asks of its applicants though, is a proof of employment and source of income. The borrower must be a citizen or legal resident of the U.S.A, with a valid social security number, and a stable job for no less than two years in the same company.

The FHA loan has one of the lowest down payments of all the home loan options available nowadays. It ranks second to the VA and USDA loans, which are zero-down-payment mortgages but are exclusive to a specific group of people and income range. Currently, the FHA loan maintains a 3.5% upfront payment, which is significantly lower than the 20% demanded by most conventional mortgages.

Where the conventional loan beats the FHA loan, however, is in the insurance.

Conventional mortgages require no insurance from borrowers with a 20% deposit. Down payments of 19% and below, on the other hand, come with one mortgage insurance, paid until more than 20% of the loan is covered. In the case of FHA loans, two mortgage insurance premiums are required (upfront and annual MIP), which is quite a sum considering the fact that the annual MIP is charged until the loan is fully paid.

All factors considered, the FHA mortgage is still one of the most attractive options for those who struggle with meeting the credit qualifications of traditional mortgages. For a more detailed information about the loan and what it entails, get in touch with an authorized FHA lender in your area, now!

by jkyle