Securing a home mortgage is often a daunting task. The array of loans available often overwhelms potential homebuyers, especially if they face financial difficulties or have a limited credit background. Fortunately, some loan programs are designed to make this progress more accessible, especially for first-time buyers. One of these options is the Federal Housing Administration (FHA) Loan.

FHA loans have been an excellent choice for many aspiring homeowners for years because of their flexible eligibility requirements and attractive interest rates. Unfortunately, while it's been around for decades, many still need to understand its purpose, prompting various myths or false information that hinder potential borrowers from applying. 

In this blog post, we'll show some of these known myths and provide information that will give the truth to help those eligible for FHA loans.

Myth: It's Difficult to Quality for FHA Loans

It's easier to qualify for FHA loans than conventional ones, even if borrowers have poor credit scores. Borrowers can apply even with a minimum credit score of 500 but with a required loan-to-value (LTV) ratio of 90 percent. Applicants can even set their "overlays" or minimum credit scores when applying. 

In addition, borrowers can submit additional factors to strengthen their application and prove their worthiness. These include verified cash reserves, low debts, minimal housing payment increase, adequate non-taxable income, residual income, and increased earning potential. 

Lastly, the FHA loan is an excellent option, even for those with bad credit. Getting a mortgage with past bankruptcies and foreclosures is more challenging. However, borrowers won't have to wait longer if they apply for an FHA loan than conventional lenders. 

For instance, when applying for this loan, the waiting time for bankruptcy is two years after discharge and three years for foreclosures. That's four years and seven years, respectively, when applying for conventional loans.

Myth: FHA Loans Require High Down Payment

Some people think that this loan's flexibility comes at a significant price. However, that's not the case, and borrowers might need less time to save for their potential home. 

FHA loans require a low down payment. It might depend on the borrower's credit score, but the fee will still be significantly low. Borrowers with a credit score of 580 and above must pay a down payment of 3.5 percent, while those with 500 to 579 must pay ten percent. 

Meanwhile, most lenders require applicants to pay at least 20 percent for their mortgage. That means borrowers won't have to spend as much despite a low score. 

Myth: FHA Loans Have a High Closing Cost

In addition to the mentioned money-saving factors, FHA loans provide little to no closing costs since these loans offer three to five percent of the loan amount. 

Because sellers can pay up to six percent of the sale price, borrowers can negotiate with them so they won't have to spend so much on their homes. Some closing costs sellers can cover include property taxes, escrow fees, homeowners insurance, title insurance, and lender fees.

Myth: FHA Loans Have Limited Housing Options

FHA loans also offer more than one housing option to borrowers. These include single-family houses, condominium units, manufactured homes on permanent land, and multi-family houses with up to four units. 

Meanwhile, it's vital to note that if borrowers plan to buy more than one property, they must live in one of them for at least a year as a requirement. Some homeowners make the most out of their properties by renting other units to have a passive income to cover their mortgage. However, lenders will look for a borrower's experience as a landlord for that option to work. 

Moreover, an FHA loan for single-family homes allows borrowers to buy existing properties for fixer-upper projects and renovation with the same low down payment requirement. FHA mortgages also enable homeowners to build a house from the ground up.

Myth: FHA Loans Are Not Secure 

One of the biggest misconceptions surrounding FHA loans is that they lack the necessary security for borrowers. However, to qualify for an FHA loan, a house must meet the "remaining economic life” requirement.

This requirement means a property must be deemed suitable for resale throughout the entire loan term, which can be up to a maximum of 30 years. The loan will only be approved if the home's condition supports its economic viability during the said duration. This concept serves as consumer protection and ensures the property retains its value and can be resold without issues.

Fact: FHA Loans Are Worth Considering 

FHA loans are excellent options for purchasing a home with low down payment requirements, secure investment plans, and other benefits that trump conventional loans. The best part about this particular loan is that it doesn't discriminate against a person's ability to purchase a new home. Don't let false information hinder your application for such a practical financial option.