An FHA Loan May Help You Buy Your First Home With Low Income And New Credit
If your income is fairly low or if you're just starting to build good credit, then you may think you'll never be able to buy a home. However, an FHA loan could be the solution. FHA loans have been around for a long time and they're popular again since the collapse of the housing market. They're a way for people with lower incomes and less than perfect credit to buy a home. Here are a few things to know.
The Government Insures The Loans
An FHA loan isn't made by the government. An FHA-approved lender makes the loan under the conditions established by the FHA. The FHA then insures the loan in case you default on it. This makes the arrangement less risky for the lender and makes it possible to get a mortgage under more favorable terms than you would get with a conventional mortgage that requires a higher down payment and higher income.
The Requirements Are More Flexible
Requirements for an FHA loan are more lax than those for a conventional mortgage so an FHA loan is ideal for first-time home buyers, but it can be used by anyone who wants to buy a home. It's still possible to be denied for an FHA loan if you have a poor credit score, but you can qualify with a lower score than is required for a conventional loan. Plus, the down payment amount you need is lower, and you're allowed to use a gift for your down payment, which you can't do with a traditional mortgage.
In addition, interest rates can be lower with an FHA loan so you save money over the life of the loan. There are many benefits to choosing an FHA loan, and it can help you get in a house when you're starting in life so you can build a strong financial future.
The State Of Your Finances Determines Your Loan
Even though FHA loans are easier to qualify for, you don't want to be lax with your finances before trying to get a home loan. Your income, credit score, and amount of debt all come into play when you apply for an FHA loan. If your income is low or if you have a lot of debt, you may only qualify for a smaller mortgage than what you need. If you can't increase your income, then reduce your debt before you apply for a loan. Also, work on improving your credit score to improve your chances of being approved for a loan. By presenting your best financial picture to the lender, you'll be able to qualify for more money and a lower down payment.