If you are a potential home buyer but suffer from lower credit or other financial difficulties, a conventional mortgage may not be an option due to the strict underwriting guidelines followed by conventional lenders. However, an FHA loan may be an option, and here is why.

FHA loans are offered by institutions that are federally approved to issue mortgages insured by the Federal Government through the Federal Housing Administration. This gives the lenders the protection they need to issue mortgages with different requirements than would be considered under their conventional guidelines.

Here is why an FHA mortgage could be an advantage to you:

Minimum FICO Score

Conventional mortgages normally must have greater than a 620 FICO score, while FHA mortgages can be approved for as low as 580. Credit ratings from 500-579 can be approved for FHA mortgages if more than 10% is put down at closing.

Minimum Down Payment

Varies with conventional lenders, but it can run from 5-20%. FHA loans can have as little as 3.5% down for credit ratings above 580.

Mortgage Insurance

Conventional lenders typically require mortgage insurance when less than 20% is put down, but that insurance can end when the loan-to-value (LTV) drops below 80%. FHA loans have the following requirements:

If the borrower puts down less than 10%, they must pay a 1.75% mortgage insurance premium at closing plus pay a monthly mortgage insurance fee for the life of the mortgage. If they put more than 10% down, the monthly mortgage insurance fee will expire after 11 years.

Other mortgage considerations include your debt-to-income ratio, or DTI, which lenders look at to determine how a mortgage will raise your monthly total debt including car loans, credit cards, utilities, and more. FHA loans are a bit more flexible on DTI than conventional loans. Also, an FHA mortgage can only be issued for a property that will be occupied by the borrower (which can include multi-family dwellings). Conventional mortgages can include vacation homes and investment properties as well as personal homes. There may be some FHA loan limits in specific area that we can discuss with you as needed.

Mapp Realty and Investment Company in Sarasota can assist you with your mortgage and home buying needs if you live on the Gulf Coast of Florida from Anna Maria to Naples. For more information on mortgage options please call us at 941-379-2448.