If you are unsure if you could meet the minimum requirements to obtain a conventional home loan, the FHA loan program might be the solution you need. An FHA loan is a mortgage backed by the Federal Housing Administration that could help individuals who might be deemed high-risk borrowers by lenders.
The program has been around for a long time, but there are still some myths floating around. These false beliefs might be stopping borrowers from trying to apply for FHA loan. Here are four of the most common ones you need to be aware of:
Myth #1: The FHA Will Lend You the Money
The Federal Housing Administration only insures or guarantees the loan and doesn’t lend any money. Primary Residential Mortgage, Inc. notes that when applying for a mortgage, you need to find an accredited FHA loan company. The FHA-approved lender will guide you through the process and the FHA would only get involved if you default on your mortgage.
Myth #2: You’ll be Required to Pay 10% Down Payment
FHA loans requiring 3% to 3.5% down payment depending on their credit score and debt-to-income ratio. If you’re not able to shell out enough down payment, you could also accept funds from family members, provided they’ll give the funds to you as gifts. You could get help from the government or private assistance programs.
Myth #3: FHA Loans are More Expensive than Conventional Loans
This is not necessarily true because an FHA loan’s true cost would depend on the loan size, your credit score, and down payment. What makes FHA loans seem “expensive” for some borrowers is the required mortgage insurance, which you could pay annually or during closing.
Myth #4: You Can’t Use an FHA Loan For Home Repairs
This is not true. In fact, the FHA offers a loan called the FHA 203k that’s specifically designed for people who wish to borrow funds to renovate their homes as part of their home loan. The loan size would be determined based on the estimated cost of the renovation and the price of the house.
Now that you’re fully aware of these FHA misconceptions, you could better decide if an FHA loan would be right for you. Just keep in mind that you have to find an FHA-approved lender with ample experience in the FHA loan program to ensure that the entire process would go on smoothly.