7b. Pros and cons of FHA financing
7c. FHA-rehabilitation loans
7d. Other FHA loan options
7e. Buyer requirements for FHA loans
7f. Property requirements for FHA loans
7g. FHA loan checklist
Read the full Chapter Seven in one page
As buyers begin investigating FHA financing, the options available and the underwriting requirements, many find false and confusing information. For this reason, many myths circulate about FHA loans. Buyers must know the facts surrounding FHA loans and the truth behind some of the most common myths. The following are several common FHA financing myths and the real facts buyers must know.
Myth #1 – Excellent Credit is Required to Quality for FHA Home Loans
Even buyers with less than perfect credit may qualify for FHA home loans. If buyers are able to show themselves a dependable buyer and they have a steady income, they have a good chance of qualifying for FHA financing.
Myth #2 – Stated Income Will Secure the Loan
Although some conventional loans only require potential borrowers to give stated income, an FHA loan requires more than just stated income. Documentation of income is required for approval, which can be shown with pay stubs or income tax return forms.
Myth #3 – A Big Down Payment is Needed
Certain conventional loans require up to 20% down, especially in this economic climate. This is especially true for buyers with less than perfect credit. However, FHA financing does not require a big down payment like many conventional financing options. In many cases, buyers may only have to pay as little as 3.5% down on HUD homes, as well as certain closing costs.
Myth #4 – Buyers Must Wait 7 Years After Bankruptcy to Get a Home Loan
Going through bankruptcy often makes it difficult to acquire financing, but buyers may not have to wait seven years to get the home loan they need to purchase government foreclosures. FHA financing is available to some buyers in as little as a year after the bankruptcy. Those buyers making on-time payments who have established good payment patterns after their bankruptcy may be able to qualify for FHA loans far before seven years has passed.
Myth #5 – Any Property Can Be Purchased with FHA Loans
FHA financing offers excellent financing for many property types, but buyers cannot use FHA loans to purchase any property. Requirements state that these loans are specifically for those who will be living on the property purchased. Property not used for a primary residence and commercial properties do not qualify for FHA financing – something potential buyers need to remember when purchasing HUD homes.
Myth #6 – The FHA is Picky About Property Conditions
Some claim that the FHA is too picky about property conditions, but this is not the case. While the FHA makes certain demands regarding property condition, the demands are reasonable and beneficial to buyers. Appraisals done on HUD owned properties are usually more lenient on minor repair issues, such no repairs are permitted before settlement, although these minor problems are noted on the Property Inspection Report and appraisal.
Myth #7 – Few Lenders Writer FHA Loans
Certain lenders refuse to work with the FHA; however, plenty of lenders do work with the FHA. Buyers that find their local bank refuses to process these loans should continue their search, since many lenders happily work with buyers interested in FHA financing for HUD homes.
These myths are commonly associated with FHA financing and buyers must know the truth behind them. Get the facts before going through with FHA financing or any other financing option for government foreclosures.