Are you a good candidate for an FHA mortgage? Answering that question depends on whether or not you hit the sweet spot that makes FHA loans most effective. If you do, that sweet spot can be your best path to home ownership.
FHA Mortgages: Finding the Sweet Spot
FHA loans make it easier to buy a home, but that assistance comes at a price. If you are the type of home buyer who needs that assistance, then the price may well be worth paying – and that's who fits into the sweet spot for FHA loans.
FHA loans reduce barriers to home ownership by requiring a less extensive credit history and lower down payments. The price comes in the form of mortgage insurance, which will add to your monthly payment. The sweet spot is this – if your financial situation is good but not stellar, you may be a good candidate for an FHA loan because you have a good chance of qualifying for one of these loans while you might come up a bit short of getting approved for a conventional loan. If your credit history and financial resources are good enough for you to qualify for a conventional loan, that might be a better option because it is likely to be cheaper than an FHA loan.
Are You a Good Candidate for an FHA Mortgage?
Here are some signs that you might be a good candidate for an FHA home mortgage:
- You have a limited credit history. It helps if you have some track record of making payments on time, but if you have only had access to credit for a couple years, you might not have had the chance to build up the lofty credit score that conventional lenders prefer. Your credit history does matter to FHA lenders, but having FHA insure on these loans gives lenders the confidence to take a little more risk than they otherwise would.
- You have made few credit mistakes – or those mistakes are long in the past. While a limited track record is fine, if your payment history is a complete disaster, you probably aren't going to qualify for an FHA loan. If you have made mistakes in the past, you can still qualify for an FHA loan if you have since established a record of more responsible payment behavior. For a limited time, under the Back to Work – Extenuating Circumstances program, you can even qualify for an FHA loan if you had credit problems caused by an economic event beyond your control, such as the loss of a job.
- You have a steady job. Speaking of jobs, this is a key to qualifying for an FHA mortgage. FHA loans are designed to help people qualify, but they are not there to help you make the payments on the loan. So, you need to show that you have sufficient reliable income to keep up with your monthly payments.
- You have little money saved. If your finances are on a good track now, but you simply have not had enough time to save up for a significant down payment, FHA loans might be a good option. You can get an FHA mortgage with a down payment as low as 3.5 percent.
- You are ready for a commitment. Much of what FHA mortgages do is get people into homes sooner – without having to wait years to establish a long credit history and save up for a down payment. Still, you should ask yourself whether you feel settled enough to take on the financial responsibility of owning a home, and whether you are confident that the property and location you are choosing will be right for you long-term. Even with an FHA mortgage, there are costs involved in buying a home, so changing your mind soon after you buy can be very expensive.
Do these characteristics sound like you? If so, you are a good candidate for an FHA mortgage and should talk to an FHA lender for more details.