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FHA – Best Thing That Happened To Low Credit Rating?

What is an FHA loan? An FHA loan or Federal Housing Administration loan type of mortgage is a loan that is insured by the federal government. It is a blessing for those with lower than ideal credit report ratings because lenders are able to lower down usually very strict requirements such as credit scores and debt ratios. For this reason, if you have a lower than average credit rating, these are the loans that you need to go with. There are others but these have an additional requirement, like the VA loan or the USDA loan. All of them have government backing on insurance. Stay and read on a fantastic article on how to fha loan. What does an underwriter look at when you apply for an FHA loan?

Because it involves a lot of money, you can be sure that they will be looking at and scrutinizing everything about your finances and your capacity regarding debt. The first part would be the application. DO not just submit applications on every lender that offers FHA mind you, having multiple applications at the same time will reflect negatively on your score as it is. You see, every time you submit an application, your credit gets pulled. These inquiries can be damaging an may pull down your score even lower.

Low Credit Rating

The one person that may need convincing the most and the one person that your documents need to pass would be the underwriter. Because Insurance is key to being approved, the underwriter will go to great lengths to ensure that your loan IF approved would be insurable and will meet the lender’s minimum criteria at the very least. Not only the lender’s but more importantly the Department of Housing and Urban Development’s criteria. This is very important because the lender stands to lose money if the loan gets defaulted by the borrower because the insurance will not pay up. This happens if the requirements for the insurance is not met but got partially insured anyway.

One thing to remember is that the FHA is NOT a lender but in strict terms actually an insurer. The lender is special though because they would have to be an FHA approved lender. This should be your starting point, look around and do your research before putting in an application on one. Compare rates and add-ons so that you will find the most appropriate one for your financial situation. It is very important to shop around. There are also closing costs for an FHA loan – but the federal government allows the lenders only 3-5% of the loan amount as a regulatory measure.

For the duration of the approval process, be in constant communication with your loan officer for an update and be on the lookout for things that you can do on your end to speed up the process a little bit.

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