FHA lenders help buyers purchase new homes on a daily basis. An FHA loan is an attractive option for many prospective buyers because these loans are backed by the government. As a result, FHA loans typically have lower interest rates and less stringent qualification criteria.
If you are thinking of applying for an FHA loan, here are three tricks that you can use to improve the quality and terms of the loan you ultimately sign for in the future.
1. Identify Applicable Credit Brackets
Most FHA lenders assign interest rates based on a credit bracket system. Credit brackets divide consumers into one of multiple tiers, based on their credit score. The benefit of understanding these brackets is that you can use them to your advantage.
For example, if your credit score is 639 and a new credit bracket starts at 640, you may be better off trying to increase your score by one point to enjoy the significant interest reductions associated with the higher credit bracket.
Playing the system by using credit brackets to your advantage could help you save a lot of money over the life of your FHA loan.
2. Know Your Down Payment Options
FHA loans require some of the lowest down payments of any mortgage product. Individuals applying with a credit score of 580 or higher are only required to put 3.5% down. Anyone with a credit score between 500 and 580 could secure an FHA loan with a 10% down payment.
Some mortgage products require that the full value of the down payment come from your own financial resources. FHA loans give you the option of utilizing a down payment assistance program to meet your financial obligation.
You can apply for a down payment assistance grant through your local government, or you can ask a friend or family member for a loan. Both options are acceptable for FHA loans.
3. Consider a Repair Escrow
All lenders require an inspection and appraisal before closing a mortgage. FHA loans are notorious for their strict inspection standards. Something as simple as chipped or peeling paint could bring the purchase of your home to a halt.
Conventional loans require that all identified repairs are completed before the closing can occur. This can delay the purchase of a home significantly.
FHA loans give you the unique opportunity to establish a repair escrow. The repair escrow is money set aside to complete necessary repairs after closing.
Use a repair escrow to streamline the buying process and help you get into your new home faster. For more information on FHA loans, contact a professional near you.