If you’re looking to buy a home but your finances aren’t in good standing, consider getting an FHA loan. This government has super friendly loans for borrowers.
Prospective home buyers without a strong financial standing can take advantage of FHA loans in Orem when looking to buy a home. The Federal Housing Administration (FHA) guarantees any loan issued under the program. Because of this guarantee, lenders are willing to increase loan limits and even consider borrowers who don’t qualify for their conventional loans.
As with any other loan, you have a free hand at the type and size of property you can buy with it. From single-family homes to multi-unit properties, you have many choices. Taking part in this program comes with other advantages.
Pass It Along
One of the distinct advantages of an FHA loan is that it’s assumable, which makes it easy to sell a house. Instead of taking a new credit, your potential buyer can take over your loan. That might make it easy to sell your home in a market with a fast-rising interest rate. Since it’s a continuation, the buyer gets to enjoy the same price as you did.
However, for the buyer to assume the loan, they must be eligible for an FHA loan as well. In addition to the standard qualifications, the buyer might need to come up with a sizeable down payment. For instance, the mortgage was $240,000, and the new owner assumes the loan at $200,000. The buyer needs to raise the extra $40,000 to even out the transaction price.
Lower the Mortgage Insurance Premium
With conventional loans, mortgage insurance is a fixed sum, often 3 percent, of the total amount borrowed. With an FHA loan, the upfront mortgage insurance premium comes to 1.75 percent of the money borrowed. You can pay it out of pocket or have it added to the principal balance. On a $200,000 the amount works to $3,500. Adding that to the principal bring the total to $203,500.
The annual mortgage insurance is where things get interesting as the sums are prorated to the size of your down payment and credit score. Naturally, high scores and deposits attract the best rates. The difference in MIP can be quite significant. For instance, putting more than 10 percent down on a 15-year FHA gets you an annual rate of 0.45 percent. The MIP works to 0.70 percent per year with a deposit of less than 10 percent.
Enjoy Low Entry Bars
You need a high credit score and a sizeable down payment to qualify for a typical home loan. With the government-backed loans, you can be eligible with super low credit scores. While the rates depend among lenders, some accommodate borrowers with a score of 580. However, high default rates often force borrowers to push the cut-off line to 620 or 640 to minimize exposure.
For prospective homeowners with poor credit scores, an FHA loan makes the best choice. The government-backed loan comes with low interest rates and can accommodate borrowers with scores as low as 580. It’s also more forgiving when raising a down payment as low as 3.5 percent.