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Did you know the FHA loan came to an appearance when the housing market was in shambles? The mortgages were not an easy option for many borrowers. Less than 48% of citizens owned property, and it was indeed a matter of concern. The FHA loans appear to relieve the stress of numerous buyers who do not have a stable financial profile.
Currently, 7 types of FHA loans are available in the market – traditional loan program, construction to permanent loan, energy-efficient mortgage, 203(K) rehab loan, home equity conversion, guaranteed mortgage payment, and Title I property improvement loan. The FHA loan 500 credit score Texas is definitely the perfect option if you are dealing with poor FICO scores. If you already know the program seems the right fit, a few pieces of information should be kept in mind. The article deals with the essential things you must remember before applying for an FHA mortgage.
What is an FHA Loan Program?
Private lenders issue the FHA loans which are guaranteed by the Federal Housing Administration. This means – if a borrower is unable to pay for a loan, FHA covers the amount. The FHA loan benefits have several benefits including a small down payment, assumable loans, an opportunity to rebuild credit, and financial assistance for home improvements.
Qualifying for FHA Loans
The Federal Housing Administration is a part of the HUD. Now, the HUD allows the 500 credit score requirement for low- or average-income borrowers. You can qualify for the FHA loan program only if you pass the eligibility through the automated underwriting system.
If you are a first-time homebuyer, you need to remember HUD solely wants hard-working Americans to achieve homeownership. FHA mortgages have a lenient guideline to follow. In comparison to other loans, this loan program has an easier requirement to pass. Even if you are a borrower with less than credit and outstanding collection, you can move forward with an FHA loan application. A borrower with a history of foreclosure or bankruptcy is also allowed.
Why Some Lenders have Higher Credit Score Requirement
FHA loans were introduced to encourage homeownership in the wake of the Great Depression. For this very reason, the credit scores are much lower than the conventional loans. However, every FHA lender does not follow the same requirement for the program. Again, it is not illegal for lenders if they have a higher credit score requirement. Most of the lenders have overlays, and this leads to a stringent requirement. Also, loan officers can have lender overlays regarding everything. You can always research to find 500 credit scores.
If you are allowed for 500 credit scores, you can apply for a 10% down payment without PMI. There is an alternative for a 10% down payment. You need to have at least 550 for the 3.5% down payment. If your credit score is lower than 500, you need to work on credit scores. Talk to lenders who can help you in this situation. Most importantly, start your research!