First Time Home Buyer Opt For Fha Loans
Are you a first time home buyer? Or are you wondering if you can afford to buy a
new home with your lower income? Worry not when FHA loans can help.
FHA loans are federal assistance mortgage loans insured by the Federal Housing Administration (FHA). The loans, issued by federally qualified lenders, are designed to assist borrowers to get the approval necessary for conventional home loans. FHA does not make loans but insures the loans made by private lenders. These loans have many benefits to offer to a first time home buyer which include low down payment, low monthly mortgage insurance, low closing costs, and relaxed credit score.
Lenders agree to make large mortgages, when FHA guarantees to pay off a loan if the borrower defaults. Some interesting facts worth considering in FHA loans are,
Lower down payment, as low as 3-3.5%
No minimum income limits.
Reasonable debt to income ratio.
A relaxed credit score is sufficient.
When signed for a FHA loan, the borrower may have to pay an upfront mortgage insurance premium (MIP) of 2.25% and some amount of fees to FHA with each monthly payment. These funds are used to pay off the mortgage, if the borrower defaults on the loan. Some major drawbacks of FHA loans are that they may not offer a big sum of cash for large mortgages and the MIP may cost more than any other private insurance.
FHA home loans may be the best choice if your credit is less than perfect for conventional loans. With these loans you can buy a home, remodel and, make repairs and improvements. Your loan request may be approved even if you have had financial issues. Some facts worth considering are,
Credit scores can be lower than that expected for a conventional loan.
If your credit score has been very good since your bankruptcy or foreclosure, for the next three years, you may obtain a loan.
There are few drawbacks in these loans. Some of them are,
Each lender has its own terms and rates for the loan, which means research on the market indices is much required.
You may not be able to borrow huge amounts of cash, compared to that from conforming loans.
Though you may not need a perfect credit history, you will need some history for the lenders to look into.
These loans have mortgage insurance structure that may not be ideal for all borrowers.
There may not be as many options as in non-FHA loans. The terms and conditions may be conservative, to avoid lender loss.
FHA loans may be the best choice for lower income and first time home buyers. The loan is approved only if you meet the
FHA requirements. If you have had credit problems in the past, you may seek a consumer credit counseling program to avoid being denied the loan. Some basic details you may need to meet the criteria include,
Your social security number, legal resident papers, legal age proof papers.
Whether you are employed for the past few years, preferably with the same employer, and a stable income.
Whether you can make the 3% down payment.
Your history on bankruptcy or foreclosure.
FHA loan terms are much more generous than conventional loan standards, but you may get the loan only if all their requirements are met.
by: Ask Bill
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