Seven facts about FHA home loans you should know include lower credit score requirements and down payments than conventional mortgage counterparts. The other five facts are just as useful to a house hunter as the low down payment and FHA credit score rules.
FHA Home Loan Limits Are Adjusted Yearly And Vary Depending On The Housing Market
Not all housing markets have the same costs or median house prices. A Zillow.com report for home values in 2018 says houses in California may average around $500,000 while homes in Pennsylvania average around $160,000. FHA home loan limits for high-cost and low-cost areas are adjusted rather than featuring an one-size-fits-all approach.
FHA Loan Down Payment Requirements Compared To Conventional Mortgage Loan Requirements
FHA loans specify down payment minimums between 3.5% of the adjusted value of the home to 10% depending on the borrower’s credit rating and other factors. Conventional Mortgages may require as much as 20% down.
FHA Loan Credit Requirements Are Not As Strict As Conventional Mortgages
Because FHA home loans and FHA refinance loans are backed by the government, the lender can afford to be more forgiving when it comes to credit scores. Borrowers should know that a lender’s FICO score requirements may not match the FHA loan requirements-many participating lenders require FICO scores in the mid-600s for the lowest down payment and other terms.
FHA loan rules (not the lender’s rules) say a borrower is technically eligible for an FHA mortgage with FICO scores of 500 to 579 (with 10% down) and FICO scores of 580 or better getting the lowest down payment requirement (3.5%).
FHA Loans Can Refinance Conventional Mortgages For Lower Interest Rates
You may be able to refinance a conventional mortgage into an FHA loan for a lower interest rate depending on your credit, market conditions, and other factors. Ask your participating FHA lender about refinancing out of a conventional mortgage into an FHA loan and how the interest rates may differ.
FHA Loans Allow Certain Closing Costs To Be Paid By The Seller
Sellers can contribute money to approved closing costs and/or origination fees up to six percent of the sales price of the home. Lender requirements and state law may affect how this is done.
FHA Loans Come In Adjustable Rates and Fixed Rate Versions
You can apply for a fixed rate FHA mortgage or an adjustable rate loan if the participating FHA lender agrees to offer it. Borrowers who choose adjustable rate mortgages are often not planning on staying in their home for the full duration of the loan term or may be planning to refinance again to a fixed rate once the lowest rates on the adjustable rate mortgage have been adjusted.
FHA Loans Are Available To All Financially Qualified Borrowers
You do not have to be a first time home buyer to qualify for an FHA mortgage loan, and there is no need-based restriction on FHA mortgages. You can be in any income bracket and successfully apply for an FHA loan or refinance loan as long as you are financially qualified and can afford the mortgage.