To own a fully paid property that one can call home is perhaps everyone’s dream. Yet, some have serious doubts about owning a house. It is like a dream that is too big to come true.
There are many reasons why some people never take the risk of getting a mortgage. They could be first-time buyers who have no idea about the housing industry and how mortgages work. Others are bothered by their low credit score and think that they would never qualify for a loan.
Still, some do not have enough savings for a down payment on a house they want.
The coronavirus pandemic has also affected the housing industry, pushing some mortgage lenders to review and amend their underwriting process and loan requirements.
To those who know the way, making this dream a reality is just a matter of taking the right steps. The first step to take is simply to know what kind of loan or mortgage to get.
For those without prior experience, getting a starter home is thought to be an affordable option. When you look at market figures, even a starter home can be a hefty challenge if one is not prepared. According to the National Association of Realtors, the median starter home price can set back a borrower by as much as $233,400. For this purchase price, a down payment of at least $46,680 will have to be raised one way or another.
But all is not lost since there is still a way forward if one considers the Federal Housing Administration (FHA) loan. That is a mortgage that fits the need and capabilities of borrowers with low to modest incomes. Private companies also administer this type of loan, but it is covered by insurance from the FHA.
Created by Congress way back in 1934, the FHA loan was originally designed to reduce the risks of mortgage lenders and to make loans more accessible to those who need it the most. The current loan terms are for either 15 years or 30 years.
If you are still not convinced that this might be the right loan package for you, read on.
Here are the reasons why the top mortgage companies offer an FHA loan:
1. Super Low Down Payment
For many years now, the FHA loan has required only a mere 3.5% down payment, a rate that is doable for most low to middle-income earners. This rate is available to borrowers with a credit score of at least 580. This rate is affordable since there are cases that lenders require at least 20% in down payment depending on the loan type and credit score of the borrower. There is also a down payment assistance program that can be availed of by qualified borrowers.
2. Credit Score-Friendly
An FHA loan is also a good option for borrowers who are still working on improving their credit scores. A credit score of 500 to 579 may be approved subject to certain conditions.
A typical or conventional loan requires a minimum of 620 in credit score, which makes the FHA loan more attainable and advantageous.
3. Variable Maximum Loan Amount
The maximum loan amounts will vary depending on what the FHA classifies as a low-cost area called the floor, or a high-cost area referred to as the Ceiling. The FHA loan limits depend on the county or location and the number of units of the property.
In 2020, the minimum national loan limit (the floor) was set at $331,760. This amount represents 65% of what is called the national conforming loan limit, or $510,400 to be exact.
A slightly higher ceiling limit was set for some counties due to their particular location, which lends construction to be set at higher rates. These places include Alaska and Hawaii, as well as the US Virgin Islands.
These are the fundamental reasons why an FHA loan may be the right vehicle that one can use to own a home eventually. Those looking to file a mortgage application must take heart in knowing that interest rates are going down. There is also a high demand for refinancing options.
One only needs to be resourceful and diligent in getting all the right information about FHA-insured mortgages. By surfing the internet, anyone can easily tap into information, news, data, surveys, and other types of reports related to home loans. There are also mortgage companies that have qualified, professional staff who can share more in-depth details about the FHA loans. This information can be customized based on the financial background and preferences of the client, the would-be home buyer.
Indeed, by investing time and patience in planning for the home purchase and getting a mortgage, it is a dream that is within reach by all.