The FHA loan has come as a boon to many lower income wage earners and individuals with bad credit scores. Now with the help of this loan they can realize their dreams of purchasing a home of their choice without having to worry about being rejected by banks and other traditional financial institutions. Since its inception in 1934, the main objective of the FHA loan was to provide financial assistance to those individuals who were not eligible or did not possess the means to apply for a regular bank loan. The loan scheme came into being to encourage more people to purchase homes by providing them with a unique mortgage loan that was secured by the Federal Housing Administration (FHA).
What are the eligibility criteria for the FHA loan?
- The applicant must be a legal resident of the United States and should be of the requisite age needed to borrow a loan in his state.
- In order to ensure that you qualify for the loan, the lender would verify your debt load, your income as well as your assets.
- Although the FHA mortgage loan does not require any minimum credit scores, you would need to show your past credit scores to the lender so that he can determine the interest rate.
- The applicant must have a valid Social Security number.
In addition to basic eligibility requirements mentioned above, the applicant would be required to make a three per cent down payment in order to avail of the loan. Although this down payment is usually made as a cash transaction, the borrower is permitted to gift it to the lender. Compared to conventional loans, the low cash down payment of the FHA loan makes it more feasible for first time borrowers to avail of this loan.
The FHA mortgage loan is thus ideal for first time home buyers as the interest rate is much lower compared to most traditional bank loans. For individuals who have very poor credit scores, the FHA mortgage loan is a blessing as it is the Federal Housing Administration that secures the loan. This incentivizes lenders to provide a loan to borrowers with poor credit at very low interest rates as they can get rest assured that in the event that the borrower defaults, the FHA would step in and redeem the loan.