Applying for an FHA loan is not easy as you think. There are many things you should be careful about. Of course, the programs have flexible requirements. For instance, only an FHA loan makes buying a house with 580 credit score in Houston a reality. FHA-approved lenders also have their own standards for allowing borrowers with risks. That’s why you may notice a difference between the requirements. Moreover, banks and other financial institutions are not enthusiastic about doing government loans either.
Nevertheless, buying a house with a credit score of 580 is possible. For this, you have to carefully initiate the application preparation. Gathering vague knowledge about the process might only put you in an awkward position. When you are confused about the loans, here are a few things you must remember.
Why Choose an FHA Loan?
The Federal Housing Administration curated a mortgage program for low-to-moderate-income buyers. For those who are distressed at the thought of paying a 20% down payment, the loan comes as a relief. Thankfully, the FHA loans allow down payments as gifts from verified sources including family members and relatives. The reason why FHA mortgages are popular is that they are more attractive than conventional loans before first-time borrowers. From relaxed underwriting to high debt-to-income ratios, FHA mortgages help borrowers with severe financial issues.
Also, the programs are very much appealing to those who do not have cash at the moment. The lenient FHA standards allow the sellers or lenders to take care of a large portion of closing costs. The FHA loans primarily aim at borrowers with insignificant credit and need thorough assistance from lenders. In this context, the seller credits can cover the maximum closing costs. Moreover, you can choose from three types of FHA programs – FHA purchase loan is for buying a home, 203(K) program is for purchasing and renovating the property, and FHA Streamline Refinance is for refinancing into an FHA program.
Other Than FICO Score Requirements
Apart from carrying at least a credit score of 580, there are a few things you should remember. The FHA loans ensure lenient guidelines, but this does not mean long gaps in employment are allowed. Lenders pay attention to your work history as they review your pay stubs and other relevant documents. As long as you have proof of income, you can proceed with the mortgage process.
Then you should focus on your debt-to-income ratio. FHA mortgages allow a high DTI ratio but it should be below 50%. A low DTI ratio always guarantees a low mortgage rate. Meanwhile, many first-time borrowers worry whether an FHA loan is the right fit. You have to pay an upfront MIP ranging around 1.75% of the home value.
In the end, buying your dream home holds a strong possibility, thanks to FHA loans. You can start the research at an early stage. Go over the FHA loans and lenders; pick the right option suitable for your financial situation.