What is a Low Credit Florida Mortgage Loan? Inside the World of the FHA

Everyone knows a Florida mortgage loan is a major expense; most likely the greatest investment you’ll ever make. However, it can be even MORE costly if your credit score is less than idea.

Some buyers look into subprime Florida home loans, but rates can be even more significant on these resources. Therefore, the question remains: how do you avoid having to pay a higher rate? One way is to pay down your debt and establish a good track record of paying your bills on time. But this can take up to a year to show results.

There is another way, to afford that dream home: through the use of the Federal Housing Administration (FHA). We’ve recently talked at length about changes made in favor of the buyer when it comes to an FHA mortgage - but what, exactly, is the criteria used for approval on these loans?

Florida mortgage loans: FHA style!

Contrary to some people’s belief, the Federal Housing Administration is NOT a lender. This is a federal government agency that guarantees Florida mortgage loans by private lenders, making them available to people who may have a difficult time qualifying , often because of a lack of credit history.

Examples would include recent college graduates or newlyweds, as well as people who have had credit problems with bankruptcies and foreclosures. Because an FHA mortgage is government-insured, lenders granting these mortgages assume less risk than they do with other low credit score loans and therefore can extend credit at a more reasonable interest rate.

How to qualify for such a Florida mortgage loan

The qualification process for an FHA mortgage is different than for a conventional Florida home loan. While your credit score is usually the most important factor lenders consider when approving you for a conventional loan, with an FHA loan it’s not the central factor. Rather, the FHA looks at your overall credit history - and is often more flexible in considering mitigating factors.

The FHA does require a one-year period of acceptable credit, during which you have made all your payments promptly. It may review your rental or mortgage payment history during that time, any new credit or credit inquiries, and whether you have paid off any judgments against you. And it considers your debt-to-income ratio to ensure you’ll be able to repay the loan.

Advantages:

- The FHA may not hold an unpaid collection against you if there is a valid reason for not paying it.
- You can qualify three years after a foreclosure, as opposed to the usual four years with a conventional Florida mortgage loan.
- Your down payment can be as little as 3 percent of the loan amount.
- Your housing expenses (PITI) and other debt payments can total 41 percent of your income, compared with the usual 33-36 percent for a conventional loan.

Disadvantages:

- There is a limit to the amount you can borrow that varies depending upon your area.
- You may have to take out a second loan if, due to regional limitations on the amount your can borrow, an FHA loan does not provide you with sufficient financing.
- You will be required to take out FHA mortgage insurance.
- In most cases, you’ll pay 1.5 percent of the loan amount on closing, plus 0.5 percent per year. However, both of these amounts can be rolled into your monthly payments; the total is likely to be less than that the cost of private mortgage insurance on a conventional low-down-payment Florida mortgage loan.

In the end, an FHA mortgage may be the answer for you, but not all FHA Florida mortgages are the same. Look carefully at the rate and other features, while comparing options, before signing up with any lenders.