FHA loans are sanctioned by lenders who have been approved by the FHA. The FHA is not the one issuing the loan, but an insurer for the creditor as well as the borrower. The down payments for FHA loans can be as low as 3.5%, low-interest rates and also issue loans to people with a history of no credit score or moderately good credit score.
Though applying for an FHA loan, being eligible to do so and acquiring the loan are very simple steps in the FHA loans, there are a few things that are required to create a loan account. Here are the requirements:
- FHA loans require the borrower to hold mortgage insurance till the mortgage loan is fully paid off. Unlike any other form of tradition loan, FHA does so in order to protect the lender against a loss, should the borrower fail to repay the loan. Because of the minimum equity on their homes, borrowers have little to lose.
Doing so not only insures the lender against any losses that he or she may face, but it also guarantees the borrowers with less-than-perfect credit history to be eligible to apply for the loan, since the FHA stands as insurer.
- To create an FHA loan account, a perfect credit history is not necessary. Even if the borrower has bad credit history or has gone through bankruptcy, he or she can apply for an FHA loan depending on certain factors like the time span and/ if any good credit was set during that time. A minimum score of 580 may be required for a person to be eligible for a loan.
- Before issuing a loan, the lender has to perform certain calculations relating to how much can the creditor borrow and the amount which will be paid every month, that is the mortgage payment.
For example, the mortgage payment, including all the charges of miscellaneous expenses and insurance, can be up to 31% of the creditor’s monthly income. Therefore, for a person whose monthly income is $5,000, he or she will have to pay $1550 as a monthly mortgage payment.
If the creditor holds any other loan accounts like student loans, then the mortgage payments in total of all the accounts should not be more than 43%. Therefore, the person with an income of $5000 will pay $2150 every month as mortgage payments, all in all.
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