3 Questions to Ask Yourself Before Choosing an FHA Loan

Choosing an FHA Loan

So you're a first-time homebuyer who's considering applying for an FHA loan. You know some of the benefits, but the real question is: “Is FHA the right home loan for me?”

So to help you decide whether an FHA loan is the right mortgage for you, here are three questions that you need to ask yourself.

1. Is your credit score lower than 620? 

A conventional mortgage requires a credit score of at least 620. If your score is below that, you can use an FHA loan to purchase your home and then refinance to a conventional loan once you meet the requirements needed. The credit score required for an FHA loan can be as low as 500, giving you options when your credit is less than ideal.

If your score is above 620, then a conventional loan may be a better choice. The higher your credit score is, the lower your interest rate might become.

2. Do you have a rough credit history? 

Do you have late payments or errors on your credit history within the past 12 months, or did you file for a Chapter 7 bankruptcy within the last four years?

If yes, then an FHA loan might be what you need. You are eligible for an FHA loan two years after declaring bankruptcy, assuming that you have improved your credit score and did not acquire additional debts within those two years.

If you don't have any of these credit issues, then a conventional loan may be better for you.

3. Is your debt-to-income ratio higher than 43%?

If so, then an FHA loan is a great option. FHA loans allow for more flexibility with up to 50% DTI ratio.

If not, then a conventional loan may better serve your needs.

Depending on your situation and financial needs, an FHA loan might be the right choice for you. But keep in mind that it's not the only option there is.