Mechanics of an FHA loan

The mechanics of an FHA loan are simple:  common sense underwriting and good credit make the perfect marriage.

An FHA loan can be a refinance or a home purchase loan.  Anyone can take out a loan with FHA if they are refinancing, even if their current loan isn’t an FHA product. FHA is also great for first-time homebuyers, but anyone should take a look at getting an FHA loan for several reasons.
 
FHA is looking for good credit, but it doesn’t have to be excellent as it does with a conventional loan. Think of an FHA loan as the organic produce versus the conventional produce that you see in almost any grocery store. Conventional loans are looking for a credit score of 680 or better, and, in addition, most of their lowest rates are only available once you get above a 700 score. With FHA, you can get a really low rate even if you don’t have a 680.

FHA allows the opportunity for people to get what they need when they have a good pay history over the past 12 to 18 months. They aren’t going to hold a medical collection against you that is five years old. I hear this all the time, and it’s discouraging because, many times, people have these medical bills as a result of unforeseen circumstances.
 
An FHA loan is granted based on many factors, not just one, and sometimes it can take time to get it done, but the results are well worth the wait. The factors that are taken into consideration are the credit score, income and ability to repay your new loan, as well as your pay history over the past 12 months. You might have a 650 score, but with good job history, good income history and a good pay history over the past 12 months, you will be considered favorably. These are aspects that the lender will look at in order to get you approved, so getting an FHA loan is different in that respect.
 
FHA loans are available to those who are buying a home or refinancing, and they are exceptional for the first time homebuyer. An FHA loan can give you the advantage of doing a lower down payment of 3.5% versus the 10% on a conventional loan. In addition, you can take advantage of the 3.5% with a score of 620 or better.

FHA did change their guidelines this year, so for a lower score of 580 you will need to put down 10%. This was put into place for more security for both you and the lender.  Keep in mind that a lower score usually indicates a higher risk, but not all borrowers are created equal. Again, it is taken into consideration that you may have dealt with circumstances beyond your control at some point, and these guidelines are in your favor to help you, not hurt you.
 
For more information on FHA, you can go to www.fhaloansnow.net.

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