For every first time home buyer, the lack of familiarity of purchasing a home, its details, processes, lists of documentation, and amount of time and consideration is nothing short of an overwhelming experience when you don’t know what to expect, do, or where to start.
Luckily, for first time buyers the Federal Housing Administration (FHA) offer’s loan programs designed to get you approved. Because FHA loans allow for an easier process over conventional style options, FHA lenders provide loan requirements attainable beyond others. Below are five primary reasons on why first time buyers benefit from choosing a FHA lender for their home mortgage.
1) Credit History
With an FHA loan, most past credit problems are often considered more lightly during review and are often dismissed in the approval process with a written description. These include areas of bankruptcy, late payments on accounts within a framed timeline, and collections (disregarding federal liens such as tax and student loan defaults). With a credit score minimum of 620, FHA lenders are helping to aid in more people becoming homeowners over others every day.
2) Down Payment
The greatest part of applying for an FHA loan is that the amount of money upfront is substantially lower then conventional loans that require up to 20 percent in funds for a down payment. Where as first time buyers typically have yet to establish that amount of funds within their portfolio, FHA loan requirements make it a bit easier to purchase with requiring only 3 percent of the loan value to be paid in the closing costs; allowing buyers to enter into the next phase of their financial future. Other positive items available are gifts from family members and coverage of closing costs by the seller.
Within today’s market, FHA offers low competitive rates providing an overall lower monthly mortgage. With a low mortgage rate, homeowners enjoy the ease of a much less amount paid out through the life of the loan; meaning the better the rate, the less amount of money you pay for your home during your entire ownership. This is often in direct competition with the traditional 30-year fixed mortgage.
4) Application Ease
As long as you are able to meet the requirements placed by the FHA within your credit, have an amount of 3 percent to place down towards closing costs, verifiable positive employment history…chances are high in your favor for approval.
5) Debt to Income
Despite more normally required limits, FHA lenders allow for a high debt-to-income ratio. This amount accounts for outstanding credit card accounts, car and student loans, and other monthly expenses, with the understanding that if you are able to maintain your current payments along with an anticipated mortgage payment (add up each item of debt, including the estimated mortgage payment, and divide by your monthly income) the FHA will allow up to a 50 percent debt-to-income ratio.
FHA 101 Overview…
- Credit History
- past credit problems are accepted more easily
- areas include bankruptcy, late payments during an explained timeframe, collections
- does not easily excuse federal and tax liens taxes,
- does not easily excuse defaults on student loans
- accepts minimum of a 620 credit score
- Down Payment
- requires only 3 percent of the loan value to be paid at closing
- may be a gift from a family member
- allow up to 6 percent in seller concessions (seller can pay up to 6 percent of the closing costs)
- low competitive
- pay less amount through the life the loan
- competitive to the traditional 30-year fix
- Application Ease
- strong chance of approval within the minimal requirements
- Debt to Income
- allows a high debt-to-income ratio
- 50 percent debt-to-income ratio (debt + estimated mortgage payment,
divided monthly income)