A Guide To Obtain FHA Loans For First Time Home Buyers
Many people have heard of FHA loans for first time home buyers but don’t really know what they are. That’s because these loans, while available to more than first time home buyers, are designed more specifically for first time home buyers.
Hence, they’re not really advertised to those seeking home loans that often.
But FHA loans for first time home buyers can be, and in many cases are, the ticket to owning a home for some people.
The restrictions are not nearly as stringent as you’ll find with a conventional loan program. And you could even save some money with this alternative form of lending.
If you’ve been wondering about FHA loans for first time home buyers, then you’ve come to the right place. Here, we’re discussing the ropes associated with obtaining this type of loan so you can make your dreams come true. Keep reading to learn more.
What is an FHA Loan?
The Federal Housing Administration or the FHA backs a mortgage against default if a borrower cannot make payments on their loan. The program was designed in 1934 to help low and middle-income wage earners afford homes of their own. With this in mind, most FHA loans only require a 3.5 percent down payment and have extremely competitive interest rates.
These loans, designed for people with less than stellar credit, make owning a home a more viable option for many. In fact, this type of loan program is the best first time home loan for just starting out.
Who Qualifies for an FHA Loan?
Many people think of FHA loans for first time home buyers because these types of loans do cater to first time home buyers. Especially those without much savings for a down payment. But, the truth is, anybody can qualify for an FHA loan if they’re interested.
FHA loans are a good option for people that want to save money up front on their mortgage. With a low down payment requirement, many buyers can get into their homes for much less than they would with a conventional loan. And, with a lower interest rate, there are savings to account for all around.
FHA Loan Requirements
Of course, there are some first time home buyer requirements to be eligible for an FHA loan. You’ll need to have proof of income and at least two years on a job. You may need to provide tax documents and other verifiable statements about your debt to income ratio as well.
Homeownership is a big responsibility. You should have your finances in order as you enter into the loan process. It will not only make it easier for you and your loan officer, but you’ll have a better idea of what you can afford.
Overall, the guidelines aren’t very strict for FHA loans. Even if you’re denied by one lender, it can’t hurt to try with another. Some banks have their own stringent guidelines for mortgages that another bank may not have.
FHA government loans for first time home buyers don’t require much of a down payment at only 3.5 percent of the total purchase price. These funds may be gifted from family or friends that have an interest in the borrower. That means you could secure 100% financing for an FHA loan.
To do a little short math for you:
If you’re looking to finance a $200,000 mortgage with 3.5 percent down. You’d need $7000. This is a nice comparison to a conventional loan that may require as much as 20 percent down!
Back to the math: if you can secure a gift from family or friends for $7000, you’ll secure a new mortgage without a down payment and 100% financing.
Credit scores aren’t much of an issue for FHA lenders. You can secure an FHA loan with a credit score as low as 500, although you’ll pay 10% down in lieu of 3.5%. Otherwise, a 580 credit score and above will secure you a fair rate and you’ll be eligible for a loan.
It’s important to remember that your credit score will affect your interest rate. With this in mind, you can expect to secure a better interest rate with a higher credit score.
You’ll pay two types of mortgage insurance with an FHA loan. The first one is literally up front when you sign your loan paperwork, although you may opt to have this lump sum rolled into your mortgage payments. It’s a premium charged at 1.75% of the home loan.
Annual MIP, or Mortgage Insurance Premium, is actually a monthly charge, on top of your initial upfront payment. This payment will remain a part of your loan for the lifetime of the loan. Annual MIP is based on your loan to value, the loan size and the loan term.
How to Get FHA Loans for First Time Home Buyers
All you have to do to find FHA loans for first time home owners is to ask your local and even national lenders about their programs. Lenders must be approved by the Federal Housing Authority, so make sure you ask before you start rate shopping. You can use home finder websites where you’re already searching for homes to help guide you toward an FHA approved lender.
FHA Loan Interest Rates
Of course, you may be most interested in what kind of interest rate you can obtain with an FHA loan. It will be different for everybody. You can also use the aforementioned home finder websites to shop rates from various lenders. Once you secure a lender, it’s a good idea to lock in your rate while you continue shopping for your home.
FHA Loans for First Time Home Buyers
FHA loans for first time home buyers are easier to get than most people realize. It all boils down to whether or not you want to pay for Private Mortgage Insurance. Otherwise, as long as you have secure finances, you’ll be well on your way to home ownership in no time.
Remember this guide when you start shopping for a home loan and consider an FHA loan. It could save you money depending on your interest rate, the value of your home and total loan amount. Not to mention that you can always refinance later with an FHA streamline process, or by switching to a conventional loan.
If you still have questions about FHA loans for first time home buyers, feel free to contact us. We’re your one-stop source for everything credit related.
Get Control of Your Credit With Our Free Ebook
* indicates required