FHA Loans: Common Myths and Facts
As in many cases there is several items we DO NOT NEED YOU to payoff to qualify for a home loan. Common items that borrower’s think they have to pay off and they do not are:
- Vehicles that have been repossessed and the unpaid portion of the balance is being reported to the credit report.
- Credit cards that went late and never got paid off.
- Pay day loans that were not paid.
- Personal loans that were not paid.
- Medical debt that was not paid in any amount, including medical bills over six figures.
While applying for an FHA loan is more flexible than many other loan types it will still require mortgage insurance even if your down payment is a larger percentage of the total purchase price than 3.5% of the property value. Mortgage insurance is required on conventional loans as well unless there is a down payment of 20% or more made towards the purchase price of the home. However your credit score does not determine the amount of the monthly mortgagee insurance like a conventional loan does. You can be a 500 credit score or you can be a 800 credit score borrower, and the monthly mortgage insurance will be the same on a FHA loan. This is why its recommend if you have under a 700 credit score, its best to go FHA instead going convectional as the conventional counterpart’s mortgage insurance will start to sky rocket under 700.
As mentioned above a FHA loan can be incredibly flexible for buyers as it allows for credit issues than the conventional counterpart financing don’t allow for. Here is are the reasons why you would seek to purchase a home using a FHA loan.
- Credit score is under 700.
- Need lower monthly mortgage insurance costs to have a lower monthly payment.
- Need a higher monthly allowance on the debt to income ratio to qualify for a higher purchase price on a home.
- Purchasing a property at or under $355,000
- Looking for a 1st time buyer program that only requires 3.5% down.
- Have past credit issues that are still on your credit report.
- You are a first time borrower without the most established credit report.
- Had a recent bankruptcy that has seasoned for 2 years or more.
- Had a recent foreclosure that has seasoned for 4 years or more.
- Had a recent short sale that has seasoned for 3 years or more.
- Currently in the middle of a chapter 13 bankruptcy and wanting to purchase a home.