5 Debunked Myths and Misconceptions About FHA Loans
Financing is always a complicated issue, wrought with many obstacles and challenges, but given the right understanding and sufficient information, you could quite easily improve your financial standing enough to purchase a home. FHA loans are just one of the things you can consider when thinking about your first home. There are many misconceptions as the complex nature of FHA loans, with these misconceptions often deterring the misinformed. That’s why this article will debunk some of these misconceptions so you can make better financial decisions about buying your new home.
FALSE: FHA loans are from the government
These loans are not offered by the Federal Housing Administration or any other government agency. Such loans are given by qualified lenders such as banks, mortgage companies, and credit unions. The only involvement from the government is that the U.S. Treasury backs and provides guarantees to lenders if a borrower should default on their payments.
This adds a level of security that protects the lender and is what makes FHA loan interest rates competitive. It is still up to the lending institution to approve your loan.
FALSE: FHA loans are only for low-income households
These loans are not just for people with credit scores of 600 and below, or to lower-income families. So long as you meet the qualifications set forth by the Federal Housing Administration, you can apply for an FHA loan. To clarify further, there is no maximum income restriction when it comes to these loans.
The process does necessitate the submission of proper documentation of one’s income and assets in addition to a 3.5% down payment and around a minimum credit score of 620.
FALSE: Only first-time buyers qualify for these loans
While most people who avail of an FHA loan are first-time buyers, you can still qualify for such loans even on your second, third, fourth, fifth property and so on. However, lenders might advise you to make use of conventional loans on multiple properties.
FALSE: These loans are only for borrowers with a bad credit history
While people with credit scores of even down to 580 can qualify, this is generally not the case. For anyone with a score 580 and above, a 3.5% down payment is required. For anyone between 500 and 579, their down payment could go up to 10%. But as an added level of security to itself, the Federal Housing Administration does penalize lenders who offer too many loans to low-credit borrowers.
FALSE: It is extremely hard to qualify for an FHA loan
While this type of financing generally does have stricter guidelines, lenders might show leniency to first-time buyers depending on certain circumstances. But no matter your credit score or income level, it is still quite possible for you to obtain one of these loans with a little elbow grease.
Even if you’ve filed for bankruptcy before, so long as it has been discharged and you are in better credit now, you still have a chance
FHA Loans with HI Velocity Mortgage
Whatever your circumstances, the Federal Housing Administration offers FHA loans as an option for people looking to finance their home. Whether you have low credit or income, your first real estate purchase is still within reach. So long as you keep yourself informed, and avoid any misconceptions, you can take yourself one step closer to your dream home.
And if you’re looking for a Hawaii-based mortgage company to help with your home purchase, call us at (808) 727-1055. We have competitive rates for people of all backgrounds!