What are the important things that people barely discuss about FHA loans? Here’s everything to know!
FHA loans are low-range mortgage products for borrowers with average income. The flexible guidelines are enticing for those who have low or no credit scores. The minimum score requirement is 580 and you can get a small down payment of around 3.5%. When conventional loans require good credit scores, the FHA loan makes an exception.
However, you cannot dive in without zero preparation. The FHA government home loans bad credit in Texas cater to a large scale of people. Private lenders are willing to offer the necessary help. You can walk through the process unscathed once you have all the information at your disposal.
The article explains the essential things you must remember to land a government-backed FHA loan for bad credit. So, let’s take a look below.
Can you Apply for an FHA Loan with No Credit?
The nonconventional mortgage allows borrowers with no credit. They have to make sure that there is a limited DTI ratio. Besides this, the borrowers must have other compensating aspects like cash reserves.
They also have to be careful about their non-traditional credit. This indicates any type of bills paid every month but not actively showing on the report. From auto insurance, rent, to phone bills, everything goes under non-traditional credit. It is possible to consider these payments if you make payments on-time throughout the year. In this way, you can get hold of an FHA loan with zero credit.
What is FHA 203(K)?
Unlike other FHA mortgages, FHA 203(K) allows buyers to find funding for repairs and renovations. This particular option is an additional guideline that permits 110% of the predicted post-repair appraised value. FHA 203(K) is a program that pays attention to renovation and repair projects. Not only is the option available for fixer-upper but it is also suitable for improving the neighborhood. Under the loan program, you can apply for home additions, kitchen and bathroom renovations, flooring and roofing, and electric or plumbing repairs. When you want to tweak your new home here and there, the mortgage could not have been a better option.
Why do FHA Loans have PMI?
FHA mortgage programs have private mortgage insurance for down payments below 10%. It is an upfront funding fee. You may have to pay approximately 1.75% of the loan value. The fee adds up with the mortgage itself, and you do not need to pay it out of your savings. When you are lured into the FHA loan for its small down payment, you should also be aware of the private mortgage insurance over the loan term. If you put down more than 10% on a 15-year or 30-year mortgage, the PMI goes away after 11 years.
When you have determined this is the perfect loan product, you should prepare for the application process. Find an FHA-approved lender, duly fill up the loan application, and verify employment status. Make sure the lender is also ready to order an appraisal and verify the title to the house.