For St Charles, IL home buyers, an FHA loan can help potential buyers in low to moderate income households make home ownership a reality. When you buy a home, you are choosing between a conventional mortgage or one that is backed by a government program. An FHA Loan is one that is backed by an agency, which often makes it easier to secure.
This is ideal for first time home buyers who are often not in a position to start with very strong credit, little debt, or have a big down payment saved. Conventional mortgages certainly have their place, but for many, an FHA home loan is the best option. Let Compass Mortgage show you how St Charles, IL FHA home loans work, and how to apply for one.
A conventional mortgage loan is insured, or backed, by a private lender. Because of this, the risk falls to the lender, and there are usually more stringent requirements as a result. Conventional mortgage loans usually require a higher credit score, lower debt to income ratio, and a decent down payment.
An FHA home loan is backed by the Federal Housing Administration. That means the risk falls to the FHA, not the lender. In other words, if you stop making mortgage payments, the FHA is responsible for compensating your lender.
There is obviously less risk to the lender in this situation, which is why FHA requirements are usually less strict. That said, you do not apply for an FHA home loan through the FHA. Instead, you apply through a regular mortgage lender that offers FHA loans.
While a conventional loan requires a credit score of at least 620, an FHA home loan will allow for home buyers with scores as low as 500 to apply. However, a score between 500 and 579 will require a 10 percent down payment.
FHA loans also set debt to income ratio at 43 percent, versus a conventional debt to income ratio of 36 percent. Again, because FHA loans are provided through a private lender, your lender may have different requirements or limits. It is worth looking at a variety of lenders to find one that works with your needs.
Clearly, there are a lot of pros to an FHA home loan. The lower down payment requirements are certainly a draw if you meet the credit score requirements. While conventional programs often ask for at least five percent, FHA is as low as 3.5 percent.
FHA rules also allow more flexibility when it comes to how you can put that down payment together. You can use funding from family, a gift, or apply for down payment assistance programs.
For those who have been through a bankruptcy or foreclosure, St Charles FHA loans offer a chance to start again. This can happen in two years after a bankruptcy or three years after a foreclosure. You will need to show you are rebuilding good credit and have the ability to keep your finances in order. Conventional programs are far more restrictive.
FHA loans let the seller pay up to six percent of the purchase price for closing costs or other prepaid items that allow buyers to obtain their loan. A conventional loan will only allow for three percent in seller concessions when a borrower puts less than 10 percent forward as a down payment. This means buying a home can be even less expensive with an FHA home loan.
A St Charles FHA mortgage loan also comes with borrowing limits and minimum property standards, which for some, could knock a dream home or fixer-upper out of the running. Limits are based on the area where you live, and property standards are in place to ensure the home is a wise investment.
Still, if you are looking for a way to buy your first home or otherwise access home ownership in a less than ideal financial situation, the advantages usually outweigh any negatives. When it comes to St Charles, IL FHA loan lenders, Compass Mortgage has everything you need to make home ownership a possibility. We look forward to working with you.