FHA Loans For First Time Home Buyers: Amazing Opportunities Realized

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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.

young couple with moving boxes

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.

man writing out the word rules

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.

Down Payment

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

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.

Mortgage Insurance

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.

hand holding house symbolizing insurance

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.

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12 Comments

  1. Wow! You have provided a lot of really interesting information!

    I arrived at your website for a quick look around and actually spent some time there learning.

    I particularly enjoyed this article about FHA loans for first time home buyers since I’m in this situation at the moment.

    It’s comforting to know that FHA is looking out for the little guy and doing everything they can to put first time home buyers into the house of their dreams.

    Great information!  Keep it up.

    • Hey thanks!

      I’m pleased you got some valuable information from the article.

      Most people don’t realize that FHA loans for first time home buyers is what FHA is all about.

      There are many advantages to financing your first loan through FHA.

      Lower down payments, lower required credit scores and interest rates that make your first time purchase more affordable.

      Thanks for visiting the site.  Please share it with our friends and family.

      All the best.

  2. Hey Patrick,

    As someone who has been saving for years to have at least 20% for a down payment I’m very happy to find out about FHA loans for first time home buyers.

    I had no idea I could get a loan with a lower percentage down payment.

    I never looked into it until now and I’m very happy to hear about this. My dream for a new home might be sooner than expected, thank you!

    • Victor,

      Happy to help out.

      Yes it’s true you can get into a new home with as little as 3.5% down with an FHA loan.  It’s even easier to qualify with lower FICO score requirements. This is great particularly for first time home buyers who generally have lower credit scores.

      One downside to the FHA program is the upfront Mortgage Insurance Premium of 1.75% and the recurring monthly MIP payment you must make with each payment.

      That stays with you for the life of the loan, as opposed to conventional mortgage insurance that goes away once your loan to value ratio reaches 80%.

      Good luck with your new home search.

  3. I knew a little bit about FHA loans, but there was a lot of information that I was just not aware of.

    I really like how you went through the mechanics of FHA loans and broke it down into simple terms.

    I didn’t realize at first that there were mortgage insurance premiums that must be paid on top of the mortgage.

    Thankfully I am educated on that now thanks to you!

    Great job!

    • Hi Elan,

      There is a lot to learn about FHA loans for first time home buyers, but with a little bit of study you can understand and take advantage of this great loan program.

      With an FHA loan you’re only required to put down a small down payment and interest rates are lower than typical conventional loans.

      Even better, borrowers can easily qualify with a low credit score.

      Most people don’t realize there is a cost to taking out an FHA loan.  An upfront Mortgage Insurance Premium and monthly MIP payments stay with the life of the loan.

      I guess this is the price we have to pay to enjoy the benefits of such an excellent loan program for first time home buyers.

      All the best.

  4. Wow! This is great information that first time home buyers truly need! 

    My family just bought our first home and it was so complicated! The more information out there the better… we need all the help we could get.

    This article really lays it all out for you. We got hit with so many surprises that made us close 2 weeks later than scheduled! Completely nerve racking!

    Thank you for the great content!

    • Hi Spencer – Glad you enjoyed the article.

      The more information you have before embarking on your home loan search the fewer surprises you will encounter.

      FHA loans for first time home buyers is your best bet in finding cheap financing for the home buying beginner. It’s easier to qualify, coupled with lower down payment and credit scores requirements.  It’s really a no brainer for first time  home buyers.

      Thanks for your input on the article.

  5. Interesting and informative article.

    I think this is very important information for first time home buyers, especially for young people who have families and are trying to get out into the world on their own.

    Nowadays not everybody knows what to do when they leave the nest. We’ve got to keep educated and keep discussions happening.

    It’s good to know that there are FHA programs available to assist the first time home buyer. This is perfect for someone who needs a little info to get started.

    • Hi Angelina,

      I agree.  Many young people are not aware of the great opportunities available to them in financing a new home.

      FHA loans for first time home buyers is clearly one of the best mortgage loan program available to help first timer’s reach home ownership.

      Easier qualification with lower required FICO credit scores, lower interest rates and a much smaller down payment is a clear winner for the home buying consumer.

      All the best.

  6. I sure wish I knew about this when I was actively looking to buy my first home. It’s a shame that the realtor didn’t even bring this up. Maybe it’s because it was a manufactured home. Are there requirements to be able to qualify for this loan. I’m still a little confused. Maybe I missed that part.
    Thanks.

    • Sometimes we jump into things before understanding the full implications.  Many times a real estate agent is more interested in the sale than the actual client.

      Generally agents defer to mortgage brokers they like to work with that can get the loan closed on time.

      There are good mortgage brokers and bad ones.  Some are simply focused on closing the loan while others take pride in truly helping their borrowers save money.  It pays to look around and get references until you find someone you are comfortable with.

      There are requirements for FHA loans for first time home buyers, but they are relatively easy to meet. You must have proof of income and a minimum of 2 years of work history and a FICO credit score of 580 or higher.

      Lenders will ask you to provide evidence of your wages and they will also pull your credit score before you can get approved.  If you get past those hurtles, you are well on your way to a great FHA loan as a first time home buyer.

      All the best.

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