Getting The Right Mortgage
FHA loans are meant to help people get houses
, who thought they could not. However, they are not perfect for all who are looking to borrow.
They do make home ownership a reality for a number of buyers though. Additionally, they are the perfect choice for those with a certain profile that might be forced to rely on predatory lenders in another situation.
The FHA home loans do have some drawbacks though that you should be aware of. It is important to at least understand the basics before you get yourself more deeply involved.
There are pretty low limits to FHA home loans; otherwise stated, you cannot borrow as much as you might need to borrow for the extravagant home of your dreams. But, these mortgages can allow you to borrow less than you might get from conforming loans under larger firms.
Whether or not you get a certain amount depends on if you area is considered a high or low cost region. The amount can end up being much less.
One important factor to determining your qualifications for this mortgage is your credit score. You must have established credit to qualify and be approved.
You do not need to have perfect credit, but you should have at least some history for them to look at. If you have no credit history, you can start building it now.
However, you should keep in mind that they may allow you to get a loan even without any history, depending on your broker. Of course, you are more likely to qualify if you have a credit history, whether it is good or not so good.
Most of the time FHA home loans require a rigid mortgage insurance structure. While you may have to allow for private mortgage insurance anyway, the FHA structure may not be the most appealing to you. You will pay 1.5% up front and pay .5% annually per month.
There is no getting out of it as you must pay this insurance premium on your FHA home loan for 5 years even if you build sufficient equity in your home or already have a 20% loan to value ratio. This is something to consider before settling on an FHA loan lending system.
The loan to value ratio tells you how much of a property will be financed. It is a way to discover how much equity you have in a property.
Therefore, the higher loan to value ratios means higher risks for the lender. If you fail to pay back a mortgage, the lender can foreclose on your home or sell it, for example.
If they have to sell for a higher price, because your value is high, their job is more difficult. So, keeping this number low will help you get approved and stay in a safe zone.
However, on the other hand, if you have only borrowed 20% of a property's value, the chances are good that your lender will get their money back. Also, some lenders will permit you to borrow more than 100% of a property's value if your credit is good.
You should know that your options may also be limited when looking into getting approved for an FHA loan. There is not as large of a variety in this realm of lending as there are in others.
They are designed to serve a basic need for a defined segment of buyers which is long term home ownership. Usually, they are conservative loans that will be less likely to lead to lender losses.
Therefore, you cannot find loans like option ARMs; but, they can lead to negative amortization in which case you will owe more at the end of the month than you did at the beginning. Therefore, you may be better off without these creative loans, but they could be a good option for some borrowers, depending on the specific needs and qualifications.
So, here are some things to consider before you choose the best kind of loan to suit your needs. An FHA loan is only for a specific crowd which may or may not solve your problems.
It is definitely a good option if your credit is down and you need funding to own a home. Talk with your local lenders for more information.
by: Tom Selwick
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