FHA Loans (First Time Homebuyers)
FHA mortgages offer a wide range of benefits and consumer protection that conventional loans may lack. Some of the most attractive things about an FHA mortgage are the low-down payment and more lenient credit requirements. FHA loans are, simply put, easier to qualify for than conventional mortgages. FHA loans are insured by the Federal Housing Administration. FHA does not lend money or issue credit, so the first requirement of the FHA loan program is to apply for the FHA mortgage through a participating licensed FHA lender. When you apply for an FHA loan to purchase a new home, you're required to submit detailed information on your existing credit, employment history, and current income. FHA lenders evaluate this information based on something called "the four C's"
- Credit history
- Capacity to repay
- Cash assets available to close the mortgage, and
- Collateral
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According to the FHA, the lender must evaluate all FHA loan applications by
- Considering the type of income, the borrower needs to qualify
- Analyzing the borrower's liabilities to determine creditworthiness,
- Reviewing debt-to-income ratios and compensating factors.
Are you ready to buy a home with an FHA home loan? Ask yourself the following questions
- Do I have a steady source of income?
- Have I been employed on a regular basis for the last two years or more?
- Do I have a good record of paying bills?
- Do I have few outstanding long-term debts?
- Do I have the ability to pay a mortgage every month, plus other expenses?
FHA loan applicants must have a minimum FICO score of 580 to qualify for the low-down payment which is currently at 3.5 %. Borrowers with a credit score between 500-579 requires minimum down payment of 10%.
Uses for an FHA Home Loan
FHA loans for single-family homes can be used to purchase suburban homes, condos, multi-unit properties (subject to certain rules) and other eligible properties. Borrowers are permitted to use an FHA loan to buy properties with a business or non-residential space as long as that space remains subordinate to the "residential nature of the property" according to FHA loan rules and does not take up more than 25% of the total floor space of the home. But that's not all you can use an FHA home loan to do. Buyers can also apply for FHA loans to simultaneously purchase and remodel or rehab a property, such as a fixer-upper home. FHA loans are also available to refinance from conventional mortgages to FHA loans, and to refinance existing FHA loans. For qualified borrowers age 62 and old, there is an FHA Home Equity Conversion Mortgage which lets you borrow against the equity built up in the home.
FHA 203(K)
In general, an FHA 203(k) loan allows you to wrap your renovation costs into your mortgage-that's just one loan and one closing. The amount you borrow is a combination of the price of the home and the estimated price of the repairs, including labor and materials. Your down payment will be based on the full loan amount, and your monthly payments will be higher since you're lumping the repair costs in the same loan.
Mortgage Qualification
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Home Mortgages come in several varieties with many features and options. For example, you can choose a mortgage that has a fixed interest rate for seven years, and then the interest rate would adjust to the current market rates. If you're like most Americans, your home is your most expensive asset. Your choice of a mortgage is critical when planning for your future.
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