Chicago routinely has over 1 million households within their city limits. Those looking to purchase a home will find plenty of options, but finances might get in the way.
If you aren’t sure whether you can afford a home or get a loan, what do you do? Where do you turn to?
Luckily, FHA loans are great options for these individuals. Read on to find out how a prospective Chicago homeowner can obtain an FHA loan.
What Is an FHA Home Loan?
FHA loans are mortgages issued by the Federal Housing Administration. They are popular among first-time homebuyers with very little savings. It’s also popular among those with poor credit histories.
An FHA loan has a 3.5% minimum down payment and is offered to homeowners with a credit score of 580 or lower. The FHA insures any mortgages issued by all lenders, including banks or credit unions.
These insurance policies cover institutions for default, which is part of the reason why the FHA can offer loans to those struggling with their credit.
How Does an FHA Loan Work?
While the FHA allows homeowners struggling with their savings or credit to get a mortgage, the aforementioned insurance is required. All FHA loans require borrowers to pay for two types of premiums.
There’s an upfront mortgage insurance premium that’s about 1.75 percent of your loan amount. This is usually paid when the borrower obtains the loan.
There’s also an annual mortgage insurance premium that stays around .45% to 1.05%. Those rates depend on the term of your loans, like whether it’s for 15 years or for 30.
Insurance premiums are canceled if the borrower finances about 90% of the property’s value while staying on track with payments. Some will have to pay out their insurance premiums until the mortgage is completely paid.
What Do You Need to Qualify For FHA Loans?
While FHA loan requirements are looser than traditional loans, there are several things you need to have in order.
First, you need proof of reliable income. These are often supplied through pay stubs or income statements. Two years’ worth of income should be plenty to qualify.
Generally speaking, you should be at least two years removed from bankruptcy to qualify for a loan. Some might require longer time periods.
Another key consideration is your credit score. Traditional loans require about 600 or higher, but FHA loans are more lenient at about 580 or higher. Make sure you meet that minimum threshold.
If you’re a Chicago resident, some requirements might be region-specific. In that case, look here for more information on what makes you qualified.
Different Types of FHA Loans
An FHA loan doesn’t just refer to a single type. In fact, there are different FHA loans that fit various homeowner needs.
For example, an FHA 203(k) loan help homeowners buy a home and renovate it through a single mortgage. They can even use it to refinance their current mortgage.
There’s even an FHA Energy Efficient Mortgage program that lets you buy homes that are already energy efficient. You can also leverage it to remodel homes to become more energy-efficient.
Leverage FHA Loans Today
First-time Chicago homeowners should leverage an FHA loan to make their lives easier provided they meet the eligibility requirements. Use this guide to know everything you need before obtaining a mortgage.
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