Want to purchase a house, but don’t have a lot of money to put toward a down payment—or any money to put toward one?
Have little or no credit? If you don’t look like a sure bet to lenders, you may have a hard time getting a mortgage. But if you are able to qualify for FHA mortgage insurance and find a lender which originates loans insured by the FHA, then you may be able to get a home after all.
What does FHA mortgage insurance do?
When a lender participates in FHA mortgage insurance, the lender receives protection should you default on your loan. This reduces the risk exposure for the lender and makes the lender more likely to consider you if you appear to be a higher risk buyer than they might normally consider for a loan. If you do happen to default on the loan, the FHA will cover the loss.
Not all loans and not all home buyers qualify for FHA mortgage insurance though. Certain requirements must be met.
Typically the cost of the mortgage insurance is passed on to the homeowner as part of the monthly mortgage payment. This does mean that the cost each month to you will be higher if you get FHA mortgage insurance, but it does have other benefits.
How do you get FHA mortgage insurance?
You don’t contact the FHA directly for a loan since the FHA itself doesn’t originate loans, only insures them. You will need to search for lenders in your area who originate FHA loans. The terms will be set by the lenders, not the FHA, even though certain requirements have to be met. This being the case, you’ll want to shop around for the best rates and terms.
Even though a lender is more likely to consider you for a loan with FHA mortgage insurance, they will still examine your risk profile to determine whether to give you the loan. If you have a good debt-to-income ratio, that can help your case.
Your payment history on other loans and debts may also be taken into account. If you have little or no credit, you may be able to get the loan if you get a co-signer. Under the FHA guidelines, that person doesn’t have to live with you in the house. A parent or a relative is a good choice for a co-signer.
Not only does FHA mortgage insurance help lower income people to get home loans, but they also make those loans more affordable. Instead of settling for another loan with a lot of unfriendly terms and a higher interest rate you can get an FHA insured loan which is more reasonable. Mortgage insurance can reduce your down payment too; many first time home buyers with FHA insured loans only need to put down 3.5% on their homes and can receive as much as 6% toward their closing costs.
If you’ve been thinking there is no hope for you to buy a home with your credit history or your income, then check into FHA mortgage insurance and lenders who offer loans which include it. You may be surprised to discover that a home could be in your future after all. Just shop around until you find the best offer which includes the most friendly terms.