First of all, FHA stands for Federal Housing Administration. That means the FHA regulates these loans and offers them at more competitive terms and rates to keep home ownership affordable for a wider variety of people. That’s also why FHA Home Loans are ideal for first time homebuyers or those with less than perfect credit. However, it may not be best for everyone because they have some strict requirements.
Advantages for First Time or Bad Credit Buyers
Your credit doesn’t have to be as good to qualify for an FHA loan as it does with a traditional loan. You do have to have some credit, but you can have a lower credit score and still have a chance to qualify for a loan of this type. You can even use your utility bills or rent as proof that you will pay your loan on time. This is not accepted for traditional mortgage loans so it is a good choice for people who are buying a home for the first time.
More people can get these low interest loans because there are no income limit requirements. This is great for people who otherwise might not be able to buy a home of their own. The fees are lower because they are closely regulated so you don’t get overcharged. There are no cash reserve requirements and they have low down payments.
Qualifications to Keep in Mind
Even though these loans are much easier to get than a regular loan, there are still restrictions. You will not qualify if you have declared bankruptcy in the last two years. If you have filed bankruptcy before you need to have built a fair credit history since then. If you have been foreclosed on within the past three years you will not be able to get an FHA loan. But you may be able to claim extenuating circumstances and still be able to apply.
You don’t want a lot of federal debt, so it’s a good idea to pay off whatever you can. Unpaid student loans and other large amounts of debt may also keep you from getting a loan. In short, try to get any judgments against what you paid before applying for a FHA home loan. And as a side note, your wife or husband may still have to sign a form even if they are not involved in the purchase.
Ask any questions you may have about your loan and always read the terms before signing your FHA home loan. If your payment is too high you may have serious problems even if the terms and rates are good. Make sure you can afford the payments before signing anything. You don’t want to lose a house you have grown to love because you can’t make payments.