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 three (3) years; any person 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 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 LoanMany 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. Also, 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 500. In addition to the small down payment and low credit score requirement, there are several other FHA loan benefits:
- An FHA loan is assumable by another party, an option not available to those with conventional loans.
- Home buyers will find that they can qualify for a loan only two years after the discharge date of a Chapter 7 bankruptcy. Conventional loans require a four-to-seven year waiting period before they can qualify.
- A prospective buyer can qualify for an FHA-insured loan three (3) years from the recorded date of a previous foreclosure, as long as the previous loan was not an FHA loan;
- A borrower may receive the down payment for the purchase of the house as a gift from a family member.
- FHA loans carry a lower interest rate as compared to conventional loans.
- A higher seller concession is allowed. Sellers can contribute up to 6% of the purchase price towards the closing costs of the borrower.
- A streamlined refinancing is available. If a homeowner already has an FHA-insured loan, they can refinance using the “Streamline” refinance program. Designed to minimize the paperwork and hassle of refinancing. FHA streamline can be done without getting a new appraisal or without a credit check.
- Finally, the higher debt-to-income ratio allowed with these loan benefits many home buyers who wouldn’t otherwise qualify for a traditional loan.