Buying a home is something that every working American should be able to do. It gives people a stable environment to raise a family, and it can save money in the long run since mortgage payments tend to be less than rent payments. Why aren't more people buying homes? Two major reasons include bad credit and being unable to afford a down payment. If your credit isn't great and you can't afford much of a down payment, learn about how an FHA loan can help.
Less of a Down Payment
Many mortgage companies require a 20% down payment when buying a home. This is because it shows you are able to manage money and pay your bills. It also allows the banks to have more faith in your ability to pay your mortgage. Most people who already have 20% of their home paid from the start aren't going to default on their mortgage payments. While an FHA loan won't give you the down payment you need, it will allow you to pay less of a down payment. This loan will allow you to pay as little as a 3% down payment to secure the mortgage.
Lenient Qualifications
It might seem like a no-brainer to get an FHA loan if you don't have a large savings account, but you still need to qualify. However, qualifying for an FHA loan is much easier than for a standard mortgage loan. To qualify, your debt to income ratio needs to be less than 43%. Meaning, your monthly bills cannot exceed 43% of your income when you apply for the loan. If your credit is on the lower side, an FHA loan may be a better option. The underwriters generally approve people with scores as low as 580, and they also take recent credit improvement into consideration if your score is lower than that. Basically, they care if you are trying. With many other places, trying simply isn't enough.
Assistance Grants
Even though the loan itself doesn't include down payment assistance, qualifying for an FHA loan can qualify you for a grant. There are many grants out there that can give you the money you need to make the down payment on your home. If you don't even have the 3%, make sure you apply. The Futures Home Assistance program offers grants to people who qualify for FHA. All you have to do is find a home with a seller who agrees to participate in the Futures Home Assistance program. Once you are approved for the home, your loan officer can apply on your behalf if you request it.
Buying a home might seem impossible if you've made some mistakes in the past, but there are resources out there. An FHA loan is a great resource and you should look into utilizing it. Talk to a professional, such as Financial Guidance Center, for more information.
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