FHA insured loan is a type of federal assistance that allows Americans with a low income to borrow money to purchase a home. The popular home mortgage option, however, has several myths related to it, which often deter first-time home buyers in Dallas, Texas and other U.S. states from looking at FHA as a viable loan program. Let’s discuss some common myths associated with FHA loans.
Myth #1 – FHA loans have the same down payment as other loans
Homebuyers often assume that the amount of downpayment required for both FHA and conventional loans are same, which is far from being true. While some conventional loans require borrowers to pay 5%, others allow a minimum down payment of 3% with restrictions. An FHA-approved lender might ask a home buyer to make 3.5% down payment for a one or two unit property. The borrower may use the grants from local or state government assistance programs and gift funds to make the down payment.
Myth #2 – It is difficult to qualify for FHA loan
Contrary to the above statement, there are fewer restrictions on FHA loan and many individuals easily qualify for the program. The main reason for introducing FHA loan was to give borrowers with limited down payment amount and low credit score, an opportunity to own a home.
Myth #3 – FHA loan has standard closing cost
Many homebuyers believe that FHA loan has standard closing cost like any other loan program. It is true that there are some additional costs such as appraisal fee and inspection for closing on a house. Borrowers may, however, negotiate with the FHA lender to reduce the closing cost on the loan.
Myth #4 – There’s no need of insurance
Homebuyers need to have two types of insurance on their FHA loans. The first one is an upfront premium paid on the total loan amount, which can be a part of the loan. The second type is the annual premium, which the homebuyer pays on a monthly basis.
Myth #5 – Individuals with low credit score don’t qualify for FHA loan
There’s a possibility that Federal Housing Association (FHA) might process the loan application of a borrower with a low credit score. It is important to know that payment history of the applicant is more important than the credit history or a bad credit report. If the applicant shows a source of steady income, chances of qualifying for FHA loan are good.
The myths discussed above are some of the many misconceptions individuals have about FHA loan. It is always better to clarify all the doubts and explore the available options before deciding upon short-listing the type of mortgage that would be more beneficial for the homebuyer.