FHA loans are mortgage loans that are insured by the Federal Housing Administration (FHA). They’re a good option for buyers with less-than-stellar credit or little money to put down on a home purchase.
FHA Loan Vs. Conventional Mortgage
If you’re considering a mortgage, you might be wondering exactly what the difference is between an FHA loan and a conventional mortgage.
In simple terms, FHA loans are backed by the U.S. Department of Housing and Urban Development (HUD) while conventional mortgages are not. This means that if you default on your payments or fail to pay them back altogether, HUD will pay off your lender in full so that they do not lose any money on their investment.
Conventional mortgages in Ohio are insured by private agencies, or even banks themselves, and aren’t backed by anyone besides whoever holds the note (the bank or agency). If they didn’t receive their monthly payments from you over time, they would lose their money because there’s no other party who’ll step up and cover that loss for them like HUD does with its insurance policy for FHA loans.
FHA Loan Requirements
To apply for an FHA loan in Ohio, you must meet the following requirements:
A minimum credit score of 580.
3.5% down payment on purchase price or 10% down payment on refinance loans. However, there are some exceptions to this rule in certain circumstances. For example, if someone is buying a house that they’ve lived in before and they want to qualify for it with only 3% down payment, then they must have good credit history and income to get approved by an FHA lender (and their lender will probably require them to pay private mortgage insurance).
Minimum 3 months’ worth of your current income if self-employed or unemployed (but not receiving unemployment benefits) as verified by your employer’s W-2 form or proof of self employment income from last year.
Find an FHA lender
As a borrower, you’re probably more interested in how you can find an FHA Loan Ohio lender. So here are some things to look for:
A good reputation. An FHA-approved lender must have been in business for at least three years and be able to show a track record of meeting the standards set by HUD.
Experienced team. You want someone who knows what they’re doing and is up-to-date on all of the latest changes in mortgage laws, as well as someone who knows how to communicate with lenders and borrowers effectively. Good customer service is key!
An FHA Loan Can Be A Good Option If You Have Less-than-stellar Credit Or Little Money To Put Down On A Home Purchase
If you’re a first-time homebuyer, you may be looking for a mortgage option that will allow you to get into the market with less cash out of pocket. An FHA loan can be a great choice if your credit score is below 620 or if you have limited money saved up for a down payment.
Credit score: Most lenders require borrowers to have a minimum credit score of 620 or higher in order to qualify for their loans (although this number differs from lender to lender). If your numbers aren’t quite where they need to be yet, an FHA loan might help give them a boost by allowing for lower down payments and smaller mortgage insurance premiums than conventional mortgages would.
Down payment requirements: While conventional loans typically require 20% down on purchase prices under $250,000 and 25% down on purchase prices above $500,000, FHA loans allow as little as 3% down when purchasing homes costing up to $314,827; 4% percent down when buying houses costing between $314,828 and $749,999; 5% percent down when purchasing homes priced at or above $750K but below the maximum allowable price point ($1 million).
Conclusion
FHA loans are a great option if you have less-than-stellar credit or little money to put down on a home purchase. They require much less paperwork than conventional mortgages, and they allow you to pay for closing costs upfront by having the lender add them into your loan amount.
