One of the most common and widely used types of loans locally is the Phoenix FHA loan. It helps to have a relatively decent credit score to get this type of loan but, as will be seen below, it isn’t an absolute necessity.
What is an FHA Loan?
An FHA mortgage loan is special type of mortgage arrangement that is insured, not by a private financial institution like a conventional loan, but by the Federal Housing Administration (FHA). This type of loan has become more common over the course of the past decade due to one factor – the FHA loan is friendlier to a first time home buyer than many other types of loan.
The main source of the attraction for first time buyers is that this type of loan can be had for a very low down payment of only 3.5%.
However, this arrangement still comes in the form of a loan, not a government grant or handout. The person who receives the loan is still required to pay regular pay mortgage insurance premiums to give maximum protection to the lender – in this case, the Federal government – if you should default.
When You Don’t Have the Very Best Credit
This type of loan arrangement is available chiefly to people who can boast a credit score of 580 or higher. However, you can also make use of this type of loan if your score isn’t quite that high.
An FHA mortgage loan has helped many thousands of first home buyers to move into their new home on a secure financial basis. Read on to learn more about the FHA mortgage loan and what it can do for you.
Who Qualifies for an FHA Loan?
As noted above, you can very easily qualify for an FHA loan, although certain restrictions will still apply. If you possess a credit score of 580 or higher, you can qualify for this type of loan if you can make a 3.5% down payment.
If your score isn’t 580, you can still qualify for an FHA mortgage loan under certain circumstances. Your score can be between 500 and 579 to get an FHA loan, but you will need to make a much higher down payment, normally about 10%.
The lower your credit score currently is, the higher your down payment and overall level of interest payments will be.
Because your down payment is less than 20%, you will be required to obtain private mortgage insurance (PMI).
What are the Benefits of Getting an FHA Loan?
There are many benefits that are associated with this type of loan. The main benefits are that you will not have to make a full 20% down payment and you do not have to have an exceedingly high credit score. You also do not have to be approved in advance for private mortgage insurance.
Another major benefit that comes with an FHA loan is the fact that this is an assumable mortgage. This means that if, in the future, you desire to sell your home, the new buyer can “assume” not only the property but also the mortgage that comes with it.
Even if you have a bad credit score, a history of bankruptcy proceedings, or have been foreclosed upon, you may still be able to qualify for an FHA loan. This type of flexibility is one of its major advantages.