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Is your credit score lower than 580 but higher than 499? Are you wondering whether you can still avail a home loan? Then you must be overlooking the perfect solution which is FHA home mortgage. However, you might have heard that FHA loan is only available for the people with bad credit. The competitive interest rates help any person with damaged credit in need of financial assistance. FHA mortgage is not for financing condo because it is available for single-family homes – this is another common myth going around. It is necessary to debunk the misconceptions of home loans with low credit score and focus on the ample benefits.
Yes, the loan is a blessing to every first-time buyer because they suffer from the financial struggles the most. As long as you are buying another property for a primary residence, you are good to go. Hence, 500 credit score home loans even cover the price of the home or the cost of rebuilt or repairs. There is a chance to finance $25,000 for home improvements only filling out 203K loan application. There are other advantages that FHA loan can provide the borrowers with low credit score. Needless to say, you should not give in to the misconceptions.
Here, we have jotted down a few myths that have been preventing people to choose the loan program for bad credit. Take a look.
Myth #1: Whole Procedure is Time-Consuming
Federal Housing Administration insures FHA loan but the government is not directly involved. The loan program is not a house loan but it calls for several guidelines to get government guarantee. When the lender abides by the FHA protocol and the mortgage goes into default, the loan officer receives 25% compensation of the entire loan amount. In any case, FHA is not linked to the approval process and takes actions when the loan goes into default. On top of it, this home mortgage does not take much longer than any other mortgage program.
Myth #2: Higher Mortgage Rates
This is absolutely wrong as long as the conventional mortgage products are in the market. Since people with bad credit are interested in opting for FHA, the rates are comparatively low. Generally, the borrowers forget that Federal Housing Administration assures the mortgage against default. If a borrower fails to pay the mortgage or the loan officer forecloses, the FHA authority reimburses the amount of outstanding balance. The lenders deliberately focus on keeping the rates lower than the traditional mortgage products.
Myth #3: Same Down Payment as Conventional Loan
For most of the conventional plans, the lowest down payment is 5%. On the other side, the home loans with low credit score can offer 3.5% down payment. The borrowers with financial woes can even ask their relatives or friends to pay for the entire down payment through gift fund. The traditional loans do not approve of paying the whole amount.
If you still have confusions about the loan programs, you can ask the professional lenders and enjoy the benefits later.