FHA Loans for First Time Homebuyers
FHA and First Time Home Buyers Remain a Good FitA first time home buyer is defined as anybody who hasn’t bought a house in the last 3 years. A first time home owner is anybody who never owned a house with the deed under their name before. When you hear about FHA loans for first time home buyers, you may believe you are actually obtaining a loan from this government agency. In fact, the Federal Housing Administration (FHA) doesn’t directly extend a loan. Their role is to insure your mortgage and, if you go into default, the Mortgage Insurance Premium (MIP) covers the difference between what the home sells for and the amount still owed on it. You must make use of an FHA approved lender if you wish to take advantage of this type of loan.
Qualifying For An FHA Loan
Many find that FHA loans and first time home buyer go hand in hand, as most prospective home buyers qualify for an FHA mortgage loan easily. You will need to meet certain eligibility requirements, such as being able to meet the 3.5 percent down payment requirement and have an acceptable credit profile. Although the FHA states a borrower must have a 580 FICO score, many lenders require the borrower to have a minimum credit score of 640. This does vary by lender. In addition, the debt-to-income ratio is less stringent, allowing more borrowers to qualify. In fact, the DTI may be as high as 55 percent. AMCAP Mortgage is one of the handful of lenders that extends an FHA loan to borrowers with a FICO score as low as 580. In addition to the low down payment and low credit score requirement, there are several other FHA loan benefits:
- An FHA loan may be assumed by another party, an option not available to those with conventional loans.
- Home buyers will find that they can qualify for a loan only three years after the discharge date of a Chapter 7 bankruptcy. Conventional loans require a four-to-seven year waiting period before a mortgage loan will be granted.
- A family member may receive the down payment for the home as a gift from a family member.
- FHA loans carry a lower interest rate as compared to conventional loans.
- Finally, the higher debt-to-income ratio allowed with these loan benefits numerous home buyers who wouldn’t otherwise qualify for a traditional loan.