You have always heard that bad credit is not a matter of concern before getting a house loan. Usually, the first-time homebuyers do not qualify for the conventional loan without facing any initial rejections. The interest rate is also high in the traditional loan and it is a potential problem for a newbie. In such scenarios, the FHA loans appear to be working because the borrowers are left poor credit score less than 620. However, have you ever wondered whether FHA loan is the best option?
Insured by FHA, an FHA loan 500 credit score Texas requires a mortgage insurance premium which is like private mortgage insurance. However, there is one benefit – you do not have to put 20% down payment mandatorily. Additionally, mortgage insurance premium even protects the house loan from the risk linked to low down payment and poor credit score. There is one question that poses in every mind regarding whether the FHA loan is beneficial for people with the 500-credit score. If you are equally interested in this topic, go through the rest of the article.
Look at the Benefits of FHA Loan
The highest advantage of the loan is that only 3.5% down payment is needed to buy the house loan. Checking the conventional loan requirements, the number is not exactly bad. For a traditional loan, you might have to pay 5-20% of the mortgage. Moreover, the borrower is not solely responsible for paying the down payment in FHA loan. If you can get the amount from an employer, charitable organization, and family member as a gift, you can receive it easily. However, the monthly mortgage insurance premium may list for the rest of your life if you do not put at least 10% down payment. Hence, the borrower may have to pay more over the period of the loan.
When does FHA Make the Best Option?
The annual percentage rate on an FHA stays between 1.5 points and 2 points than the regular fixed-rate mortgage dedicated to great credit. Here, the rates are lower than the initial rates found on subprime loan. The FHA-insured loan has fixed interest rate and the subprime mortgages come with adjustable rates that go up after the initial period of 3-5 years.
Things to Consider before Applying
The US Department of Housing and Development follows strict property appraisal standards keeping many of the properties out from FHA loan eligibility. So, the house you are applying for needs to be the primary residence. Hence, there is no scope for getting a property for investment through FHA loan. In recent time, mobile homes and prefabricated properties can pass the green signal. However, the condominiums do not face the same benefit as the ones previously mentioned.
In the end, it can be said that people having a lower score than 620, can apply FHA with 3.5% down payment (of course, they need to have at least 580 or higher score). However, the loans are not easy to get when the score is lower than 500. There are other benefits to obtain and you can seek professional help to solve the queries.
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.