Is an FHA Government Home Loan Good for a Borrower with Bad Credit?
Author : Joan Gallardo | Published On : 05 May 2021
Having bad credit does not diminish your chances for home loans – only FHA mortgage programs have made everyone believe in this. A low credit score definitely doubles the risk factors, but experienced lenders know how to handle the mortgage application. You can, of course, improve your credit score and save down payments to expect a smooth loan application process. Meanwhile, you should keep a few things in mind.
Does the FHA loan have what it takes to be the perfect mortgage for you? Many prospective buyers miss out on important information about the FHA government home loans bad credit in Texas. So, here are a few rarely-discussed things mentioned.
Brace Yourself for Mortgage Insurance
Mortgage insurance is compulsory for every FHA loan. Contradicting conventional loans, FHA mortgage insurance does not cancel out with a 20% down payment. Gaining enough equity does not eliminate the chances of mortgage insurance either. If you put down less than 10% of the loan value, the mortgage insurance remains for the rest of your life. It is better to tackle a down payment higher than 10%. In this way, the mortgage insurance does not tag along after completing 11 years of the loan. There are FHA lenders who cancel out mortgage insurance with a 10% down payment. You should research before deciding on any particular lender in Texas.
Loan Terms Differ According to Lenders
The Federal Housing Administration fixes the mortgage requirements, but the FHA lenders come up with stricter guidelines. As you already know, FHA loans have two minimum credit score requirements. The primary score is 500 for a 10% down payment, and the other one is 580 for a 3.5% down payment. However, you can come across lenders allowing a 580 credit score as the minimum benchmark. Private lenders decide on their own rates and terms before every application. You can apply for pre-approval to understand whether you can qualify the lender’s terms.
Is an FHA Loan the Right Option?
The FHA designed the mortgage program to boost homeownership. People struggling with conventional loans might have a difficult time buying their dream house. FHA loans can sort out the problem with low down payment and flexible credit score requirements. You can also find lenders offering higher loan limits. This sounds great, doesn’t it? Before you get blindsided by the good things, you should remember the PMI. You will have to prepare for two kinds of MIP – annual mortgage insurance premium and upfront mortgage insurance premium. The annual MIP might cost you around 1.05% of the mortgage every year. On the other hand, the upfront MIP is a one-time payment that costs you 1.75% of the mortgage amount. If you look beyond the MIPs, the FHA loan remains a good choice for low credit score borrowers.
In essence, FHA loans can open a chance to realize your long-cherished goal. You can remember these pieces of information before applying for an FHA loan.