Maybe you’ve been dreaming of buying your first house. Or maybe you want to buy a bigger home for your growing family. Either way, it might feel like a huge step.
Fear not! Buying a house might not be as difficult as you think. With an FHA loan, it can be more affordable than you think, too – even if you have less than perfect credit.
Could an FHA loan be the right loan option for you? Let’s take a look at some frequently asked questions to give you a clearer picture.
How do FHA loans work?
FHA loans are issued through approved lenders. The government doesn’t loan money. It simply insures these loans, which protects lenders from loss or default. The lender still underwrites, approves, and funds the loan.
Can I refinance an FHA loan?
You sure can! There’s actually a streamlined process for refinancing if you meet certain requirements. You can also refinance from an FHA loan into a conventional loan (like a fixed or adjustable rate loan) if you have enough home equity.
What type of credit do I need to qualify?
You need decent credit, but it doesn’t have to be dazzling. Homebuyers with credit scores as low as 580 may be able to qualify for an FHA loan. This is useful for homebuyers who maybe haven’t had the chance to build a good credit history yet or have significant debt such as student loans.
Do I need a big down payment?
You don’t have to make a 20% down payment which is generally required to qualify for a conventional loan. Depending on your credit score, you may be able to put down as little as 3.5% to buy a house. This is a huge benefit of FHA loans.
Do only first-time homebuyers qualify?
No. If you’re a repeat homebuyer, you may still be able to get an FHA loan.
Are there other benefits?
Yep. Although lower credit scores and down payments are two big ones, you can also be gifted money for your down payment from family and friends. Getting approved for loan is often easier with an FHA loan, and sellers can pay some of your closing costs if they’d like.
A couple additional things to know:
- You will have to show you that you earn enough regular income to pay back the lender.
- You will need mortgage insurance (MI). Typically, this is both an upfront and a monthly cost that you pay to protect the lender in case you are unable to continue making loan payments.
- There are limits to the amount of money you can borrow, which vary depending on where you live.
Is an FHA loan right for me?
It could be! Especially if the above benefits speak to you and you think you qualify for it. You can take the first step toward getting an FHA loan here.
Also, if you’re a veteran, you may want to check out this comparison of the differences between a VA loan and an FHA loan. VA loans are often excellent choices for veterans as well as for men and women who are on active duty.