Elite Mortgage Source in Cape Coral can help you with applying for a FHA mortgage loan with as little as a 500 credit score.
FHA loans, a fantastic option for not just first-time home buyers for really anybody who’s looking to buy a home who wants a low down-payment option and a lot of flexible credit options. So, if you have credit, that’s even all the way down to a 500 credit score, you can go FHA.
Choosing the right loan is going to help you save the most amount of money possible and help you win the house that you love. So, let’s talk about an overview here with the FHA loans. So, FHA loans are insured and backed by HUD. Now, what do we mean by insured? This is only insured for lenders. So basically, what it’s saying is a HUD is going to come in and they’re going to insure the loan. That way if somebody defaults on a loan or goes into foreclosure, they’re going to give the lender that back. But it doesn’t do anything to protect you, but since lenders have less risk and they can pass on some cost savings to you, and that means the loans can be a little bit more risky. What that means is they’ll lend on a lot more difficult loans that maybe a conventional loan wouldn’t allow.
They can be a lot more flexible than other types of loan programs because they are insured. FHA was started as a means to help people who couldn’t qualify for conventional loans which typically started out at least being around 43% debt to income ratio and needing 20% down.
Most people couldn’t fit in that box. So that’s why FHA was created. So, this is not just for first time buyers. This really is for anyone who wants an FHA loan. There are construction loans available. We’re not going to cover that in here, but it’s very standard, the qualifications to get a construction loan, to purchase land, and build a home as with purchasing a pre-existing home.
Okay. Now FHA tends to be the best for lower to mid credit scores and should not be a long term loan. Low would be on the 500 range. Mid would be six, you know, mid 600 range and FHA is not long-term because there’s really costly mortgage insurance. And we’ll talk about the costs here in just a little bit, but really you shouldn’t be carrying an FHA loan for longer than you need to, because it can be costly.
It can be a good option short term, but long-term probably, isn’t your best option with financing. And also, FHA loans tend to be overlay stacked. So basically, the way overlays work is FHA sets out their set guidelines — that’s the base rules that they have. And then lenders are allowed to tighten those up if they want to, they can add rules on top of the rules that FHA already has.
And this is what’s called an overlay and FHA loans tend to have a lot of overlays with them because FHA has pretty lenient standards. And then the lenders want to take on a little bit less risk than that. A good example. And we’ll talk about here in just a second with COVID is, uh, the minimum being 500 and a lot of lenders saying that the minimum is now 640 credit score.
Let’s talk about some COVID changes that have happened here with FHA. One of the biggest changes with COVID is that many lenders have put on an overlay, and not all lenders, but many lenders put on overlay that says the minimum credit score of 640.
That is not true at all. It still goes down to a 500 credit score. It’s just that some lenders are choosing not to do that with COVID. Also, if you’re self-employed, FHA wants evidence of ongoing work or current work in your organization. They want some sort of proof that you’re going to continue seeing income coming in with COVID.
If you would like to check into your options for an FHA loan please contact Don Vuncannon at Elite Mortgage Source in Cape Coral, FL in Lee County.
