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Getting An FHA Loan Just Became Easier

By E Singer
Feb 26th, 2014

fha bad creditFirst time home buyers and others looking to secure a mortgage will find it easier this month to get a home loan as the FHA has lowered credit score requirements and loosened guidelines.
Wells Fargo is just one of the companies that has been allowed to qualify buyers with credit scores as low as 600. This is what is typically considered to be subprime territory and down 40 points from the previous threshold which was 640.

These lowered standards come at the same time that demand for FHA loans has been increasing. FHA loans have become more popular because of both the lower credit score and down payment requirements. In many cases borrowers are able to purchase a house with as little as 3.5% down.


How Safe Are These Loans?

After the housing crash there has been a lingering concern about risky loans and whether or not borrowers will be able to pay back their mortgages. Anyone with a credit score between 600 and 640 is statistically more likely to default than other buyers with higher credit scores. However, Wells Fargo, one of the lending companies offering FHA loans, maintains they are safe. “All loan applications are fully underwritten and documented, and borrowers must demonstrate ability to repay,” Wells spokesman Tom Goyda said.

Who Are FHA Loans For?

The FHA has been around for 80 years and was created in order to provide Americans with affordable housing options. So, FHA loans are designed to help the largest number of people be able to purchase a home. This doesn’t mean that FHA loans are necessarily the best types of loans that you can get, especially if you have a good credit score and ample amounts of money for a down payment.

Borrowers with good credit scores and lots of cash for a down payment will be able to take advantage of some of the best interest rates. And for that reason these borrowers will often be able to save more money in the long run than borrowers who take out FHA loans. This can usually end up amounting to a difference of tens of thousands of dollars over the duration of any mortgage.

FHA loans are designed for people who have less than perfect credit. Perhaps these borrowers made mistakes with their credit or have lots of student loan debts. Finding out what your credit score is should be your first priority when it comes to determining what type of home loan you’re thinking about receiving.

As mentioned earlier, another factor that can make FHA loans compelling for many people are the low down payment requirements. Houses are among the most expensive assets that many people will ever purchase in their life. Saving up enough money for a home loan that’s worth $300,000 is just out of reach for many people. At just 10% down that would add up to $30,000. Compare that to paying 3.5% down which would mean that the borrower would only have to pay $10,500. This is a much more manageable amount to deal with especially for first time homebuyers who are often burdened with other types of debts such as car payments and student loans.