2 Myths about FHA Government Home Loans that Need to be Dispelled

There is no other way to put it: FHA loan programs minimize the hassle of finding a mortgage with bad credit. Unfortunately, many borrowers consider such a versatile loan program as a need-based option. It is a need-based financing alternative for those who do not have enough credit scores. However, its identity holds far more importance than this only. The program was launched to encourage people to buy homes during the Great Depression. Things have taken different turns since then. Catering to the people in need reflects on its one target. More like, this is just the tip of the iceberg.

The FHA government home loans bad credit in Texas look forward to helping potential borrowers willing to buy certain property types. Yes, it makes the process of purchasing much easier when your credit score dips below 620. But it can be difficult for a prospective borrower while so many myths and misconceptions are going around. The post-coronavirus housing market has just started seeing rates go up in months. And it might be a great time to land an FHA loan as well.

While things are proceeding towards normal, make your mind myth-free. Let’s debunk the misconceptions and find out the facts about FHA loan programs in Texas.

Myth #1: Only Borrowers with Bad Credit can Apply

This is a common misconception that requires immediate attention. The minimum credit benchmark 500, but it does not mean anyone with more than 620 cannot apply for the program. FHA loans have two credit score requirements – 500 credit with a minimum 10% down payment and 580 credit with a minimum 3.5%. Also, borrowers who have a higher DTI ratio can apply. When the conventional loans do not allow more than a 40% DTI ratio, FHA loans follow a more lenient guideline.

So, it is better to check there are no late payments for at last one year. Additionally, you should not have late mortgage payments for the past 6 months. Of course, remember, perfect FICO scores are welcome but not mandatory.

Myth #2: It is Compulsory to Put down 20% of the Loan Value

A large down payment leads to better equity on the home. It is understandable when you cannot make a large down payment. But this does not put an end to your dreams. FHA loans encourage low credit borrowers and the lowest down payment requirement is 3.5%. Unlike the VA loan programs, FHA government home loans do not offer zero down payments.

With a 3.5% down payment, there is FHA mortgage insurance. However, the private mortgage insurance does not add up when you are putting down 10% or more. Therefore, you do not have to put down 20% and it is not a necessary requirement.

Another thing that circulates around a lot: FHA loans are better than conventional loans. This could carry a little bit of truth; however, everything boils down to a borrower’s situation. So, research and understand where you stand. Only then make the ultimate choice for an FHA loan.