An FHA home loan can make homeownership a reality for borrowers with a lower credit score and/or lower income in West Loop. FHA loans are national but can apply to West Loop borrowers with the mortgage insured by the Federal Housing Administration, or FHA. Because this insurance protects lenders, FHA loans are low interest, with easier credit requirements and often lower down payments.
As a result, FHA loans are popular with first time home buyers, low credit buyers, and those with low to moderate income. However, anyone can apply for an FHA loan as long as they meet the requirements.
The amount of down payment you need to make depends on your credit score when it comes to an FHA loan. With a credit score of 580 or higher you are required to make a 3.5% down payment. With a credit score between 500 and 579, you need to make a down payment of 10%.
You are also required to have a debt-to-income ratio of 50% or less, a stable income, employment history, and no foreclosures in the last three years. The home must also be your primary residence.
If you have previously filed for bankruptcy, you can still be eligible for an FHA loan, if you are two years out of bankruptcy and can show your credit has improved. Generally speaking, lenders want to see borrowers who are able to manage their money wisely. Your lender can look at your specific financial situation and help you work toward what you need to qualify.
Many West Loop homebuyers see FHA loans as easier to access than other types of mortgages, thanks to these lenient requirements. There is no maximum income or income limit for an FHA mortgage loan, so even higher income buyers can benefit from this program.
It is important to know that properties/homes have to meet certain requirements for a West Loop FHA loan as well. The home must pass an FHA appraisal, which is required outside of any other appraisals or inspections required by your lender or other parties. The home must be structurally sound, safe, and a secure investment that will retain its value through the life of the loan.
You will not receive your mortgage from the FHA, but instead, from a lender working with the FHA. It is just like any other type of mortgage loan but is insured by the FHA. You pay the mortgage insurance premium to the FHA, either as a lump sum when the loan is closed or as an annual premium.
This means that your lender may have some specific requirements for a West Loop FHA loan that differ from the FHA’s minimums. It is important to understand the terms of your loan, through your lender.
FHA loans have a specific limit by county. In Cook County, in 2022, a one-family home has a limit of $420,680. This is the maximum amount in Illinois, but increases for a duplex, triplex, or four-plex.
The FHA program is one of the only options for making a low down payment, which is of great benefit to buyers who do not have a lot of cash saved. Better yet, FHA loans allow for gift funds for both the down payment and closing cost. The entire amount, which is not something many other loan programs accept. This means you could use a government home buyer program to fund your down payment under the FHA loan if the figures work out.
You already know that FHA loans are ideal for people with a lower credit score, but did you know they permit applicants with no credit score? The Department of Housing and Urban Development will not allow lenders to deny an application for lack of credit history. Borrowers can build non-traditional credit as a way to qualify, meaning payment history on bills and rent.
Are there disadvantages to an FHA mortgage loan for West Loop buyers? The biggest disadvantage is the mortgage insurance, as it cannot be canceled when you build equity. However, you can refinance out of your FHA mortgage and into a conventional loan. You must have 20% equity to be able to do this, which means a West Loop FHA mortgage loan is often a good way to start until you can qualify for something conventional.
Have you have been looking through a ton of West Loop FHA loan lenders? If so, our team at Compass Mortgage has everything you need to turn your home ownership dream into reality.