FHA Loans are government-backed loans designed to help people with little cash savings and low credit scores to buy their own homes.
Because FHA loans have low down payment requirements, they are ideal for first-time buyers who may not qualify for conventional loans.
If you too are looking to buy your home in Dallas, this guide will walk you through all you need to know before contacting any Dallas mortgage company for approval.
Post Outline…
What are FHA loans?
Who qualifies for an FHA loan?
What are the different types of FHA loans?
What are the pros and cons of FHA loans?
You can find answers to these questions right here in this post.
What are FHA loans?
An FHA loan is a government-issued mortgage solution for those buyers who may not have had time to save tons of cash for down payments or monthly mortgage repayments.
FHA loans are guaranteed by the Federal Housing Administration. That means it will offer your lender compensation if you default on your payments.
Who qualifies for an FHA loan?
Here’s what you need to do to qualify for an FHA loan in Texas:
- Pay 3.5% down payment
- Maintain 580 or above credit score
- Maintain 43% DTI
You can also apply if your CS is between 500 and 579. But in that case, you have to pay a minimum of 10% down payment.
What are the different types of FHA loans?
The FHA offers up to 5 different home loans for interested buyers.
1. Traditional mortgage
As its name hints, this is the most common type of FHA loan. It’s a mortgage of your primary (one-unit/multi-unit) home.
2. 203(k) rehab mortgage
You can also apply for the 203(k) rehab mortgage. It includes funds for a home. Plus, you’ll also get approval for home improvement funds.
3. EEM
With EEM, you can enhance the energy efficiency features inside your home without making a massive down payment.
4. Construction to permanent loan
If you’re building a home, construction to permanent loan is the best option.
5. Home equity conversion mortgage
Older homeowners looking to tap into their home equity can use the home equity conversion mortgage to receive cash.
What are the pros and cons of FHA loans?
FHA loans can be the safest bid for first-time buyers. However, just like anything else, these loans also come with their challenges. We’re going to talk about both pros and cons of FHA loans in the following section.
Pros
Low credit score and down payment requirements
As discussed above, you can apply and qualify for a loan with a credit score of as low as 500. However, you may have to pay a minimum of 10% down payment in that case.
If your credit score is slightly better, you can even get a loan as low as a 3.5% down payment.
Higher DTI is permissible
FHA loans allow for a 43% DTI. That means you can apply for a loan even if your monthly income isn’t too stable.
Variety of options
You can apply for an FHA loan for different housing plans, including a single-unit house, multi-family house, or condo.
Cons
Lower loan limits
FHA sets loan limits for each state every year. So, you have to restrict your buying decisions according to what FHA allows/refuses for the current year.
You cannot finance an investment/vacation property
You’re only allowed to buy a primary house with your FHA loan. If you want to buy a vacation home or a rental, you’ll need to acquire a conventional loan.
Ongoing MIP Expense
An FHA loan with a low down payment means you’re stuck with private mortgage insurance for the entire life of your loan.
Conclusion
All in all, it is easier to get an FHA loan. In fact, it is the best possible solution if you’re a first-time buyer with a not-so-strong credit score. Also, it works for those who don’t have enough savings to make a hefty down payment.
Plus, it is a government-backed financing option. That means it is more secure than all other options available to date.
Sure, there are limitations. But still, the entire application and approval process is more streamlined if you compare it with conventional loans.
It’s, however, important to talk with your mortgage lending company and talk about which type of loan is the most appropriate for your unique financing needs.
