Do you need to be a first-time homebuyer to get the benefits of an FHA loan? This is one of the widely asked questions among the borrowers with a poor credit score. If you look at the history of mortgage, you can see FHA loans to help a range of people. From first-time homebuyers to repeat buyers, the mortgage is the solution for people with poor credit scores. The house loan is undoubtedly popular among individuals with stipulated down payment funds. Before applying for the mortgage, you should remember a few things.
An FHA loan is a government-backed mortgage which partially saves a lender against defaults. The potential borrowers can benefit from the competitive interest rates in comparison to traditional mortgages. If you manage to pass the credit qualifications for FHA loan 500 credit score Texas, the borrowers can refinance the existing mortgage. There are other secrets to learn about the FHA loan. The facts can drag you out of the situation you are living due to so-so credit scores. Go through the rest of the article and learn about the secrets of an FHA loan.
Lenient Credit Score Requirements
If you are willing to put a 3.5% down payment, you need to have 580 credit scores in the report. So, a borrower is eligible for the FHA loan as long as he/she has 500 credit scores. If the score sinks below 500, there is no hope for the borrower. When the borrower can prove at least 500, the person can avail 10% down payment. The credit score is much-needed for the down payment and interest rate. For example, if you have 550 credit scores, you must make a down payment for $20,000 on a loan of $2,00,000. If you can show 580 credit scores, the down payment might be $7,000.
Down Payment as a Gift
Many borrowers are lucky enough to receive the entire or partial down payment through a gift. If you look at the stats, you can see that 24% of the borrowers take help from their friends or relatives. The FHA rules indicate that the gift money can be received from a labor union, family member, employer, government agency, and close friend. Of course, a lender cannot accept any amount of money. The private lenders must receive a gift letter signed and dated by the borrower and donor. It is essential to state the amount of gift beforehand. In addition to the context, the donor needs to state that repayments are not required. Generally, the lenders request the borrowers to provide the bank statements as the sources of money.
Before you finalize the home, you should get pre-approved. It is wise to stay away from the adjustable-rate loans because they are risky. Also, you should be pretty careful about refinancing. In the beginning, a major chunk of the monthly payment is dedicated to interest. Therefore, the borrower is not paying off the maximum amount of the principal. Of course, you can seek help from a private lender to understand how the FHA loan with 500 credit score works.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.