If you have a bad credit history, a FHA mortgage might be the way to go for your home loan and get a low fixed interest rate. Every year FHA helps thousands of first-time
home buyers just like you move into the house of their dreams. A home is an investment, it can save you money and it's a place to live and raise children. The FHA wants all Americans to have an
opportunity to enjoy the benefits of owning a home.
Buying a home is not nearly as hard as you might think. FHA is aware that many first-time home buyers may have had some past financial problems and don't have a lot of money saved. That doesn't mean you can't buy a home. Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements, making it easier for you to qualify (or get approval). Even if you have had credit problems such as bankruptcy, it is easier for you to qualify for a FHA loan than a conventional loan. FHA has a low 3% down payment requirement, and that money can come from a family member, employer or charitable organization. Many other conventional loans will not allow this.
Below are some key facts about FHA loans:
Maximum loan amount: According to the law, FHA is not allowed to insure loans that exceed certain amounts based on the county or metropolitan area that you live in. The maximum FHA mortgage loan amount right now is $362,790. The lowest maximum amount is $200,160. To see what the limit is in the place for the area you want to live, please visit the FHA or HUD Government Websites. These websites lists U.S. territories as states.
Maximum financing: Depending on the state where the property is located, the maximum FHA financing will be either 98.75% or 97.75% of its selling price or the appraised value of the home, whichever is lower.
Cash required: FHA requires that the home buyer invest at least 3% of the sales price in cash for the closing costs and down payment. If the sales price is $100,000 for example, the home buyer must invest at least $3,000. However, the home buyer can use funds from local, state or government agencies, gifts from family, or other sources for the down payment. Non-FHA loans may not allow this.
To qualify for an FHA Mortgage you must be a legal resident of the United States, have a valid Social Security Number, and be of legal age to sign a mortgage in your state. You must also meet the FHA's basic eligibility requirements. This is where they evaluate your credit history, your income, and your savings.
Your lender will decide if you qualify for a mortgage based on the "Four 4 C's of Credit" which are your credit history, cash to close, capacity to repay, and collateral. Your credit history involves what you have borrowed in the past, and how well you have made timely payments. Capacity refers to your ability to handle the monthly housing payments and your income. Cash to close refers to closing costs and money for the down payment. Collateral refers to the home you are buying. There is one other thing that is important to remember: A lender cannot reject your loan application based on your decision not to use credit or a lack of credit history. If you do not use traditional credit, or have an established credit history, then the lender must develop a credit history from automobile insurance payments, rental payments, utility payment records, or other direct reports from credit providers.
To find out more on FHA loans, use the search below to find and contact a real estate professional or a free or low cost HUD approved housing counseling agency to help you evaluate your loan potential. A real estate professional or a housing counseling agency will know what kinds of mortgages lenders are offering and local down payment help and can help you choose a lender with a program that might be right for you.
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