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Yes, it is a big deal – purchasing a house is an enormous investment to make. But have you been playing your cards right? When your financial condition plummets down, your credit score also sinks. With low credit scores, it becomes difficult to find mortgage options. Well, the struggle definitely starts at your ignorance. If you know your options, you would not have to wait for improving FICO scores. Thankfully, there is one mortgage which can save you from endless waits and push you forward to your ultimate goal. FHA loans are ready to serve borrowers with credit scores as low as 500.
But is it a reliable mortgage option? You must have heard a lot about the 500 credit score FHA loans in Houston. Many people say that the mortgage is not available with 10% down payment; again some say that you must have at least 620 credit scores. Limitless confusions queue up as you engage yourself in the process of exploring the right financing option. Myths and misconceptions often add further problems to the whole process. Once you clear out the smoke, you can understand how beneficial the loan is. So, let’s debunk the myths and see reality. Take a look below.
Myth #1: Stellar credit score is a necessity
Every lender prefers high credit scores because it reduces risks. Against high scores ensure low mortgage rates. But the main reason FHA loan received popularity is because of low credit scores. The mortgage program has two credit requirements. You need 500 for getting hands on 10% down payment, and 580 for 3.5%. The concept of FHA loans requiring high credit is completely false. Borrowers with average credit are most welcome. Lenders review various factors when the score is too low – funds, income, working history, and cash reserves. So, do not worry when your credit score is low but not under 500.
Myth #2: FHA loans are a risky option
The down payment options do not directly indicate the risk factor. Introduced in 1934, the loan program is still going strong in 2020. With so many successful years in its bag, the mortgage does not seem to be a risky option. On the other hand, it remains an appropriate financing mechanism for potential borrowers. Small down payments are the two most vital reasons that FHA loans are still standing strong. Of course, the program has undergone some changes. For example, the home loan is not available for DACA recipients for their citizenship status. Low down payment and flexible credit guidelines are the reasons potential borrowers can fulfill their dream of homeownership.
Another myth which often goes around is that interest rates and closing costs are higher than usual. These two factors very much depend on the lender, and many borrowers forget to include 1.75% upfront mortgage insurance. Calculate the vital costs and figure out whether you can afford the loan. Look beyond the myths; ask your lender when there is any confusion. Most importantly, do your research before finalizing any option!