Understanding FHA Guidelines: 3 Common Misconceptions
If you’re planning on buying a home, you might be considering an FHA loan.
Navigating FHA guidelines can be tricky, as there are a lot of misconceptions going around about them.
Before you apply for an FHA loan, it’s vitally important to know what you’re really getting into.
And we’re here to help by going over some of the myths that are out there about FHA loans, as well as reveal the truth behind them.
What is an FHA Loan?
Before we get started, let’s go over what an FHA loan is and how it differs from a traditional mortgage.
FHA loans are a type of mortgage insured by the government. More specifically, one that is insured by the Federal Housing Administration.
These loans were established to encourage first-time and lower credit home buyers while still protecting the mortgage companies.
FHA loans require monthly insurance premiums that are meant to protect these potentially high-risk mortgages. As such, if you have excellent credit and the money to put into a down payment, conventional mortgages usually make more sense.
Before deciding which type of home loan is the right one, you might want to weigh the pros and cons of each type of loan.
Now let’s dive into three of the most common misconceptions about FHA guidelines, and the actual truth behind them.
1. Down Payments (or Lack of One)
One of the biggest misconceptions about FHA guidelines centers around down payments.
It’s widely believed that FHA loans do not require down payments. This is simply not true.
For those with a credit score of 580 or above, FHA loans require a down payment of 3.5%, which is significantly lower than traditional mortgages.
If you have a credit score of 500-579, you will find that a 10% down payment is required.
2. Anyone Can Get an FHA Loan
While FHA guidelines are significantly less stringent than conventional mortgages, that doesn’t mean that anyone can just walk into a financial institution and get a one.
FHA loans still require a minimum credit score of 500, and even that doesn’t guarantee you a loan.
There are many other factors to consider when it comes to FHA loans, including debt to income ratios and loan limits.
There are also property restrictions for FHA loans. The property must be the borrower’s principal residence. It must be occupied within 60 days of closing, and cannot be purchased within 90 days of a prior house sale.
These property restrictions are meant to prevent borrowers from taking advantage of the FHA program to flip houses or buy investment properties.
3. The FHA Funds These Loans
Many people think that getting an FHA loan is simply borrowing money from the Federal Housing Administration, and that’s why the requirements are lower.
This too is a myth. The FHA does not actually give out any money. They simple insure the loans.
The loans are underwritten by one of the thousands of FHA-approved lenders around the country.
What Do These FHA Guidelines Mean for Me?
Now that you know the truth about some of the FHA guidelines for securing a home loan, it’s time to start finding the FHA loan that’s right for you.
It’s essential to be educated on all of your options before committing to a loan, and that’s where we come in!
FHA Loan Search can help you find the right lender, and provide expert advice every step of the way.
Reach out to us today for a custom FHA loan quote to get started on the right home-buying path.