If you want to get an FHA mortgage, you will need at least 3.5% of the home sales price as the down payment. With this, you will be eligible to purchase a mortgage deal. If you want a refinance deal, you will also need to have at least 3.5% equity after the closing costs are included in the loan value. This qualification allows you to refinance the debt without having any money at hand.
What is An FHA Loan?
The FHA, Federal Housing Administration, works differently from other lenders. Instead of making loans, it insures them. During a foreclosure, a lender of the loan will be protected by a mortgage insurance that is provided for by the government. The government offers the insurance via the FHA. This insurance will then cover the entire loan value.
In the recent times, FHA Mortgage Insurance is developed to make sure that the low-income earners, borrowers that cannot qualify for the standard loans, and first-time buyers, have access to a mortgage. It helps anyone to get the mortgage, even without money. Currently, more Americans are enjoying the FHA loans.
Prerequisites of the FHA Loan
Just like any other type of loan, the FHA mortgage comes with some requirements. Here is a look at the prerequisites of the loan;
• The co-signor must be a close relative, or they must prove a well-established family relationship with the main borrower.
• The co-signor must be a primary resident of the USA.
• There must be a comprehensive credit underwriting analysis if the co-signor is not a primary resident of the USA.
It is all about having a close relative or someone you have known for many years if you want them to be your co-signor.
Benefits of the FHA Mortgage
There are many advantages of going for the FHA loan, over the traditional loans.
• It has lower down payment and credit score. This is one of the major benefits of the FHA mortgage. The down payment and credit score requirements are quite low.
• Lower mortgage rates. The FHA loans have lower mortgage rates that the conventional mortgage loans. If you have a credit score of 660 on the FHA loan, you will get a similar interest rate as a borrower that had a 740 credit score on the traditional mortgage.
• Better closing costs. The FHA mortgage allows a seller to pay a total of 6% of the loan to cover the closing costs of the buyer. With the traditional loans, the seller can only pay a maximum of 3%.
• They are assumable. Another benefit of the FHA loans is that the buyer can take over the current FHA loan of the seller, rather than taking out a new mortgage. This is a great option when it is time to sell and when the interest rates are high. The buyer will not need to pick a new mortgage for that matter.
With the FHA mortgages, there are lower requirements and you can be sure of enjoying it accordingly. Applying for the loan is fast, and you will not undergo too many prerequisites. The only strict thing is that the co-signor must be a US citizen and resident. Also, the co-signor must be close enough to you. Other than that, this is the best loan option, especially with the current economy.