FHA Loans: Low Down Payment Home Financing
If you dream of owning a home but are concerned you may not qualify for conventional financing, consider an FHA loan. FHA loans are nonconventional mortgages that are insured by the Federal Housing Administration (FHA), an agency in the U.S. Department of Housing and Urban Development (HUD). They have easy qualifying requirements and other benefits, like a down payments as low as 3.5%. These are great home financing options for first-time homebuyers or anyone who may not be a great fit for conventional financing. To learn more about FHA loans, contact Annette Copeland – American Dream Mortgage. Annette is a local mortgage professional in Pueblo, CO, who can help you compare this and other financing options to find the best fit for your family.
A Nonconventional Solution
FHA loans are “nonconventional” because they are funded by private lenders but insured by a government agency. Conventional loans, on the other hand, are fully funded and insured by private agencies. FHA loans are just one of several types of nonconventional loans; you likely have also heard of VA loans and USDA loans. Each type has unique benefits for a different group of people. FHA loans were created during the Great Depression to help encourage lenders to finance hardworking Americans who may not have qualified for conventional financing. Today, they serve the same purpose.
Loan and Income Limits
The maximum lending limit the FHA will insure for a given loan varies depending on which county you live in. In Pueblo County, CO, the limits are:
- $294,515 for a one-unit property
- $377,075 for a two-unit property
- $455,800 for a three-unit property
- $566,425 for a four-unit property
Unlike some other nonconventional loans, like USDA loans, FHA loans have no minimum or maximum income requirements. Clients will only need to provide proof that they’re able to maintain regular mortgage payments and other homeowner’s expenses, by means of paperwork such as bank statements, W-2s and tax returns.
If a borrower defaults on an FHA loan, the government reimburses the FHA-approved private lender for the loss. Because of this, lenders incur less risk, and they open their doors to more clients, even if they have less-than-great credit or cannot raise the funds for a substantial down payment. Ultimately, each private lender decides who does and doesn’t qualify for financing, but there are some basic requirements. They include:
- A 3.5% required down payment (with a credit score of 500-579)
- A 10% required down payment (with a credit score of 580 or higher)
- No bankruptcy in the past two years and no foreclosures in the past three years
- You must not be in default for any federal debt like income taxes
- The home you plan to purchase must undergo and appraisal by an FHA-approved appraiser
- You must pay mortgage insurance (MIP), usually for the full term of the loan
If you think you may be a candidate for an FHA loan, our home financing team can help you gather the proper paperwork and, in many cases, provide preapproval.
Explore Your Options Today
If you think you may be a candidate and are interested in learning more about FHA loans, contact Annette Copeland – American Dream Mortgage in Pueblo, CO. Annette is backed by the power of national lenders with competitive rates, and has the local expertise and personalized service you deserve.