FHA loan is an option that you can avail of if you want to buy your own home. Homeownership is not an impossible dream now because FHA loans are available for you to take. If you are worried that your low credit score may hinder you from getting your home and that you cannot avail of a conventional mortgage because you will not qualify, then this is what you need to know on how to apply for an FHA loan. What is an FHA loan The Federal Housing Administration is the agency that guarantees all the FHA Loans. This agency is under the Department of Housing and Urban Development (HUD) and as it is a guaranteed loan, interest rates, and terms can be considerably lower than that of other loans. The FHA is not directly offering the loan themselves but instead guarantees the loan thereby protecting banks and mortgage institutions from bad loans. How to get an FHA loan Just like any other loan application, there will be requirements that need to be submitted. There will be financial documents that must be submitted. Here’s a list to start you off:
- Bank Statements
- W-2 forms
- Tax returns
- Pay stubs
- Social security pension or disability income
- List of debts and repayment schedule
- Investment earnings and statements
- Business profit and loss statements if self-employed
These documents are needed to show the lender that you are able to repay the loan that you are going to take out. Generally, what they are looking for is that your loan repayments should not be more than 43% of your gross income monthly – 31% goes to your mortgage repayments and 12% for other loans. Why apply for an FHA Loan FHA loan interests depend on who offers it but the good news for borrowers with lower credit scores is that they have bigger chances of getting competitive rates as compared to the rates of a conventional mortgage. Another good point of an FHA loan is that down payments can go as low as 3.5%. And you can even take out an additional amount for home improvements and repairs. Bear in mind though that fees can be higher for an FHA loan as compared to conventional loans.
