Why First Time Home Buyers Should Look into FHA Loans
FHA Loans for first time home buyers
Buying a home is a big step involving a lot of commitment, especially when it comes to the needed financing. In most situations, first time home buyers are not able to make the leap due to the high down payments and credit requirements. However, there is hope to those looking to take the plunge in an ever increasing market. This is where an FHA loan comes in.
How it Works
FHA loans are able to be given to people with lower credit and require less of a down payment then traditional loans. This is possible because the mortgages are insured by the Federal Housing Administration (FHA), taking over payments to the lender of the borrower defaults. When you are eligible for an FHA loan, there are two types of insurance fees required to pay. The upfront mortgage insurance and the Annual mortgage insurance premium. The Upfront will be required at the time of closing and is usually 1.75% of the loan amount. The Annual is .85% of the loan and is paid in monthly installments. These insurance payments mean less risk for lenders when loaning out to a traditionally risky buyer.
Who can get an FHA Loan?
Those who have a credit score of 580 or higher can qualify for the loan and will only require 3.5% of the down payment. Those will lower scores can still qualify, but will have to pay the 10% down payment. The debt to income ratio requirement is a bit lower than other loans, meaning you need to not have as much debt to pay off in addition to your monthly mortgage. Those who have filed for bankruptcy or foreclosure can also qualify for the loan after a certain period of time has passed and credit has been raised.
If you are looking to apply for an FHA loan, be sure you meet the following requirements:
- Have a credit score of 580 or higher to have the 3.5% down payment requirement.
- Have a credit score of 500 – 579 to have the 10% down payment requirement.
- Debt to Income ratio must be 34% or lower.
- Be out of foreclosure for 3 years
- Be out of bankruptcy for 2 years
- Have proof of employment
- The property must be the primary place of residence
To recap, buying your home can be a reality and the FHA loan is what makes the difference. Get pre-qualified for an FHA loan today!