If you’ve been dreaming of owning a new home but have had a less-than perfect credit history, there’s no reason to be discouraged – thanks to the National Housing Act of 1934. It was this act that created the Federal Housing Administration, or FHA, as part of the recovery process from the Great Depression. The FHA’s goal was to promote the building of new homes and provide loan insurance for borrowers who had trouble qualifying for conventional loans.
With an FHA loan, borrowers can typically make a smaller down payment toward the home purchase than is required by a conventional loan. This makes FHA loans great for first-time home buyers who may not have a 20% down payment saved or any property to sell for the equity needed for a down payment. Likewise, borrowers who have higher debt compared to their income – usually expressed as a “debt-to-income” ratio – may benefit from an FHA loan.
The lenders at Crystal Clear Mortgage are experts on FHA loans and can help you determine if you qualify for one
Those with less-than-perfect credit scores can also often qualify for an FHA loan. In fact, people who have had to declare bankruptcy may qualify for an FHA loan in as little as two years (compared for four years for conventional loans). Borrowers who previously foreclosed on a home may also qualify for an FHA loan in as little as three years as opposed to seven.
With these more lenient qualifications come a stricter appraisal process, however. For an FHA loan, the home inspection must detail any health or safety issues posed by the property as well as require remediation of those issues prior to loan closing. This is actually good news for the buyer, because it helps the buyer avoid having to undertake costly repairs after purchase.
A unique feature of the FHA loan is that it is what’s called “assumable.” This means that if you purchase a property that the seller has financed with an FHA loan, you may be able to “assume” or take over the seller’s FHA loan at the same rate instead of taking out a new mortgage. This is particularly appealing if the seller’s loan rate is exceptionally low.
And unlike with some other kinds of loans, borrowers may have a non-occupant co-sign on the FHA home loan if they need help qualifying.
For these reasons, FHA loans open up the opportunity of home ownership to many more borrowers. The lenders at Crystal Clear Mortgage are experts on FHA loans and can help you determine if you qualify for one – and whether it’s right for you.