Common Myths about FHA Mortgages and Mortgage Rates

by Edwin J. Web Marketing Manager

Eligible or not, few would opt for conventional loans if they can secure the popular alternative of FHA-insured programs. FHA home loans stand as one of the most misunderstood of mortgages. Here, we intend to debunk some ‘popular’ myths regarding this particular type of mortgage.

They are for first-time buyers only

Fact: Both first-time buyers and repeat alike can use them. Given how they are marketed as one for the sake of its low down payment requirements, this one hardly comes as a surprise. And yet, there are lots of homeowners who’ve lost their investment with the shift in the housing market and for whom FHA mortgage to buy a primary residence would be a good option. You don’t have to be a first-time buyer to be eligible for the loan, but you do get reduced premiums for the insurance if you are one.

Pre-Qualification Guarantees the Loan

Fact: Pre-qualification is a fundamental stage within the process to securing the loan. This is to allow the individual to have an idea about their budget, whether they can afford it that is, and not that you’ve been officially approved for the loan amount. The FHA-approved lenders merely assess your credit report and assets, basically everything that can help them evaluate your credit-worthiness. One more thing; being pre-approved doesn’t mean your credit score no longer matters; a lower score will come handy when the lender finalizes your debt-to-income ratio.

Everyone is Eligible for FHA loan

Fact: FHA loans are certainly not for just anyone, even with all their flexible requirements. In order to be approved, you have to have proof of income, make a down payment, in addition to a decent credit score, and not to mention compliance with certain standards of the lenders.

Keep in mind that you will have trouble getting approved for an FHA loan if your credit standing is below par. If one is to consider the credit score guidelines, we can see that an average score has gone above 700 particularly since 2011. This is not to suggest that the individuals need to have high scores to be approved; FHA loans are typically forgiving. While you don’t need to have perfect credit, the quality of credit has certainly improved.

FHA Funds the Loan

Fact: The FHA is a mortgage insurer, not a mortgage lender. Period. As a government agency, it does not work to refinance homes or provide loans for first time homebuyers. It’s there to provide insurance to credit unions, banks, and other lenders who, fulfilling the FHA insurance standards, are the ones making the loans. If these loans default or the property undergoes foreclosure or short sale, the FHA will be the one reimbursing a set amount of the losses sustained.

They are Very Expensive

Fact: This is partially correct. They can be less expensive or more expensive than any other programs depending on the loan size, location, and down payment required. Factors like your credit score matter too. The mortgage insurance, paid by the homeowner to FHA, is the most expensive portion of FHA loans. The homeowner can choose to pay it in either annual (included in your monthly payment) or as upfront MI premiums (to be paid at closing).