A typical mortgage loan would require that you have a good credit score and an impressive monthly income to make sure that you are able to pay the borrowed amount. If this is the case, then those who have low or moderate income will not have a chance of being approved. Thankfully, there is FHA loan. FHA stands for Federal Housing Administration. The FHA guarantees a portion of this loan, which allows those who have low to moderate income to apply for a loan.
The main objective of this is to help everyone have the opportunity to own a home. Normally, people with low income will find it difficult to purchase a house.
How to qualify?
Although FHA loan is typically for those who have low to moderate income, the applicant should show employability or have a stable job. It is required that you have at least 2 years steady income or increasing, preferably with the same company. If you have undergone foreclosure or bankruptcy, it should be at least 3 years old. And although it is not necessary that you have a perfect credit, it should meet the requirement of the FHA authorized lender.
How does the FHA loan works?
One of the misconceptions of the FHA loan is that the FHA lends the money to the borrower. This is not true. What happens is that the FHA insures the loan. This means that the authorized lender will receive payment from the FHA in case the borrower fails to pay his dues. This arrangement is appealing to the lender because this would imply lower risk for them.
What makes this ideal for those who have low to moderate income is that the down payment required is not high. You can pay as low as 3%. Additionally, the closing cost is low and is regulated by the HUD. Although almost everyone can qualify for the FHA loan, one must bear in mind that the amount that can be borrowed is limited.
In order to apply for the loan, you have to prepare all the necessary requirements. Among them are the addresses of the home where you have previously lived. You should also provide information about your employer. This will include their name, the address of the workplace and contact information. Such information is essential for the lender, as they need to do a background check on their applicants. Prepare a copy of your IRS form as well.
You also have to provide information about your debt. The lender will need this because they have to calculate your debt-to-income ratio.
Making sure that you have all the necessary requirements when you apply will help ensure that your application will be approved. This makes it essential to prepare all the paper works before you start your application.
FHA loan is a good alternative for those who want to own a home but does not earn enough to qualify for conventional loans. It is easy to qualify for this type of loan but you have to submit the essential requirements. However, you might find that this is not for you as the amount you can borrow is limited.