The Federal Housing Administration (FHA) is a federal agency in the United States. The administration was first established in the National Housing Act of 1934 as an insurance provider for bank loans and private loans for home construction and purchase purposes. The FHA has major effects on the real estate market as it provides stability in the mortgage industry by insuring mortgage loans. Ultimately, the FHA provides a better housing standard and makes home loans much more appealable to both the lender and the borrower.
What is a Bad Credit FHA Loan?
The FHA has become established as a way for those with bad credit to obtain a home loan. A bad credit FHA loan is a convenient option for those with bad credit to still possibly become home owners. If you would not qualify for the typical types of home financing then it is still possible that you will qualify for financing through the FHA.
Why Apply for a Bad Credit FHA Loan?
If you are someone that has bad credit and would like to own a home, then this may be the only option for you. Alternatively, you would have to spend many years building your credit back up to reach a state where you are more likely to be approved for any other type of home financing. If you want to be a homeowner and do not want to wait until your credit history has improved tremendously then a bad credit FHA loan is something you should highly consider applying for.
What are the Benefits of a Bad Credit FHA Loan?
There are many benefits to the bad credit FHA loan. The most obvious would be that it is a form of home loan which allows those with a blemished credit history to qualify for financing. Most lenders would see you as a very high risk and would almost always reject you for a mortgage loan. If you did get approved, your interest rates would likely be incredibly high and keep you stuck in debt for a very long time. However, by applying for a FHA insured loan with bad credit you will not be penalized for your poor credit history.
With the bad credit FHA loan you will not have to endure terrible interest rates, unreasonable down payment amounts, and poor repayment terms. You may even be able to get covered for the down payment as well if you cannot come up with it. Also, there are no pre-payment penalties so refinancing is easy to do with this type of loan.
The FHA insurance provides the lender the ability to loan out money without assuming a major risk. Any FHA insured borrower would not be treated simply as a borrower with bad credit. Instead, you will have an improved chance of being approved for the loan and will receive a reasonable interest rate, low down payment requirement, and flexible repayment terms as well. Also, by repaying you bad credit FHA loan on time you will be on your way to making your credit great.
Should You Consider Applying for a Bad Credit FHA Loan?
There are many benefits to applying for a bad credit FHA loan instead of other types of financing. If you are in the financial position and have a great credit history then this may not be the optimal choice for financing. However, anyone that does not have the best credit history and rating should highly consider applying for a bad credit FHA loan if they want to become a homeowner in the near future.
By applying for this type of financing you will be more likely for approval and the down payment that is required will be very low. This solves a common issue that those with bad credit have as large down payments are frequently required. However, with the FHA insured loan you do not need to make a large down payment. In fact, the down payment will fall as low as 3% of the home value. Also, the cost to close the purchase is much more affordable than most other loan options.
While everything sounds great, make sure you do your due diligence before you apply for this loan as you have to be sure you can afford to pay it off so you are not at risk of foreclosing the property in the future. In closing, there are endless financial benefits to a bad credit FHA loan and it may be your best choice for financing a home so it is definitely worth looking into.