If the prospect of homeownership seems like a far-fetched one due to low income or poor credit, then you will be glad to hear that there are government programs in place to help you secure affordable housing. The Department of Housing and Urban Development (HUD) is one such body that helps people secure housing despite their income or credit score.
HUD loans are sometimes referred to as FHA (Federal Housing Administration) loans. These mortgages are federally insured programs that are designed to offer affordable housing alternatives to homebuyers who have a problem accessing or qualifying for affordable mortgages. This article will discuss everything you need to know about HUD/FHA loans.
What is a HUD Home Loan?
The government created the Federal Housing Administration (FHA) in 1934. In 1965, the FHA was integrated into the U.S. Department of Housing and Urban Administration (HUD).
A HUD or FHA loan refers to a mortgage that is insured by HUD and the FHA. While the U.S government insures these loans, they still need to be financed through traditional lenders.
But because they have federal insurance, these mortgage loans allow for lower down payments, less stringent credit score requirements, fewer closing costs, and more flexible financing terms.
How Do You Qualify?
When it comes to HUD/FHA loans, there isn’t a specific qualification criteria since there isn’t a specific credit score or income minimum required. Nonetheless, a borrower needs to be able to provide a three percent down payment in addition to showing a stable employment and steady income history for the past two years.
Moreover, it should be at least over two years since the last bankruptcy and over three years since any foreclosure. There also needs to be evidence of good credit since any such event. Additionally, you should have paid off any tax debts or liens, or have repayment plans already in place before applying for the loan.
Your credit score should be at least 500 in order to be eligible for the loan. Individuals with decent credit typically only have to make a 3.5 percent down payment.
However, if you have a score of less than 580, you are likely going to put 10 percent down instead. Nonetheless, you are still going to pay much less upfront for a HUD or FHA loan than you would with a conventional loan.
However, you need to have saved enough cash to cover mortgage insurance which is about 1.75 percent of your loan amount.
Unfortunately, HUD only serves as a guarantor to your loan. Therefore, the final decision as to whether you will get the mortgage lies with your lender.
HUD will periodically give millions of dollars in grants to local groups and agencies. As such, if you have a nonprofit or agency that is in line with HUD’s mission, you can apply for a grant here.
If you have been looking for a regular mortgage without much success, then you should consider HUD loans. Also sometimes referred to as FHA loans, these are federal insured loans that allow low-income individuals to secure housing. You can still get the loan with a credit score as low as 500. However, you need to prove that you are paying off your debts and that you have a steady income.