A Comprehensive Guide to FHA Mortgage Loans

A Comprehensive Guide to FHA Mortgage Loans | Woodland Park CO

Saving up for a large down payment on a residential home can be a financial challenge that prevents first-time homebuyers with minimal savings from ever becoming homeowners. Fortunately, government-backed Federal Housing Administration (FHA) loans can help potential homebuyers who want a home but struggle to save or source a large down payment. In 2018, more than 80% of FHA loans made were to first-time homebuyers, according to the U.S. Department of Housing and Urban Development.

This guide will cover the advantages and disadvantages of using an FHA loan to purchase a home, how homebuyers can begin the process of researching and getting approved for these loans, and how you may be able to utilize and FHA loan for refinance purposes.

What is an FHA Loan?

An FHA loan is a home mortgage insured by the government - specifically, by the Federal Housing Administration. The term “FHA loan” is actually somewhat of a misnomer because the FHA doesn’t actually lend money to would-be homeowners. Rather, it ensures the loans made by private lenders. So while we’ll use the term “FHA loan” for simplicity, an “FHA-backed or insured loan” is more accurate.

An FHA loan aims to put homeownership within reach for many Americans who wouldn’t otherwise qualify for a conventional, non-FHA-backed mortgage. You may be able to get an FHA loan with a lower credit score, lower down payment, and a higher debt-to-income ratio than you could have for a conventional mortgage.

Types of FHA Loans

FHA mortgage loans come in several different configurations depending on your age, assets, income, current home equity, needs, and circumstances.

Fixed-Rate Purchase Loan.

Also known as a 203b mortgage loan, this is the most popular type of FHA purchase loan. Terms can vary, but 15 and 30 years are the most common. Interest rates tend to be lower than comparable conventional mortgages. 203b mortgage loans can be used on one to four-family residential homes.

Adjustable-Rate Purchase Loan (ARM).

Under the Section 251 Adjustable Rate Mortgage Program, the FHA insures ARMs whose interest rates can rise by no more than one percentage point per year and no more than five percentage points over the full term. Borrowers receive notice of pending rate increases at least 25 days prior to the increase.

Condominium Loans.

Known as Section 234c loans, FHA-insured condominium loans are 30-year fixed-rate products that finance the purchase of individual condominium units within developments larger than four units. There’s no strict occupancy requirement, so borrowers can use FHA-backed condo loans to earn rental income. However, in any given development, at least 80% of FHA-insured loans must be made to owner-occupants.

Secure Refinance Loan.

FHA Secure Refinance loans are designed to help borrowers with conventional mortgage loans refinance into fixed-rate, FHA-backed mortgages. Delinquency is not necessarily disqualifying, though it must result from higher monthly payments on a conventional ARM. Non-delinquent borrowers can refinance any type of conventional loan. Standard qualification requirements apply, including steady income, acceptable credit rating, and reasonable debt-to-income ratios.

FHA Streamline Refinance Loan.

An FHA Streamline is a refinance option for homeowners with existing FHA mortgages. This program is “streamlined” because it doesn’t have many of the income and appraisal requirements that are included with standard refinance programs. As a result, the streamlined program provides homeowners with a quick, simple way to make their mortgage more affordable.

The FHA guidelines state that a streamline refinance must provide a benefit to the borrower by either lowering the interest rate or converting the loan from an adjustable-rate mortgage (ARM) to a fixed-rate. The program also allows for higher loan-to-value ratios than many refinance programs, so borrowers who have little or no equity in their home are still eligible.

FHA Loan Requirements

FHA loan down payment

With the FHA, the minimum down payment depends on your credit score. With a credit score of 580 or higher, the minimum down payment is 3.5%. With a score of 500 to 579, the minimum down payment is 10%.

FHA debt-to-income requirements

Lenders pay attention to your debt-to-income ratio, regardless of the type of mortgage you get. The debt-to-income ratio, known as DTI, measures the percentage of your pretax income that you spend on monthly debt payments, including mortgage, credit cards, student loans, and other obligations. You can use a debt-to-income ratio calculator to figure out where you stand.

The FHA requires a debt-to-income ratio of 50% or less, according to Brian Sullivan, public affairs specialist for the U.S. Department of Housing and Urban Development, which runs the FHA.

FHA loan income requirements

There is no minimum or maximum salary you can earn that will qualify you for or prohibit you from getting an FHA-insured mortgage. However, you must:

Have at least two established credit accounts. Examples: a credit card and a car loan.

Not have delinquent federal debt or judgments tax-related or otherwise or debt associated with past FHA-insured mortgages.

Account for cash gifts that help with the down payment. These gifts must be verified in writing, signed and dated by the donor.

Checklist of Required FHA Loan Documents

Blank checklist with space for ticks on pad on office desk. Checklist for office worker, manager, businessman, chief on dark wooden background top view.

Individual mortgage lenders have different paperwork requirements. After all, they are different companies with different business models and procedures. But when it comes to FHA loans, there are certain documents borrowers must provide regardless of which mortgage company they are working with.

According to the Department of Housing and Urban Development (HUD), the government agency that manages this program: “The mortgage loan application package must contain all documentation that supports the lender’s decision to approve the loan.” This includes a wide variety of documents relating to the borrower’s financial situation, as well as those pertaining to the property being purchased.

Common FHA documents include, but are not limited to, the following:

  • Loan Application
  • Form HUD-92900-A
  • SSN Verification
  • Credit Report
  • Verification of Employment
  • Tax Returns
  • Sales Contract
  • FHA Amendatory Clause
  • Real Estate Certification
  • Appraisal Report

It’s also worth noting that mortgage lenders cannot have borrowers sign blank documents to be “filled in later.” This is a violation of FHA documentation requirements and guidelines. The HUD handbook states this clearly enough: “Lenders may not have borrowers sign incomplete documents … or blank sheets of paper.” These reasons for this rule are fairly obvious — you need to know what you’re signing!

Pros and Cons of FHA Loans

Portrait Of Smiling Family Standing In Front Of Their Home

What are the advantages of an FHA loan?

One of the main advantages is that you don't need to make a very big down-payment (which can be as low as 3.5% of the purchase price) for an FHA-insured loan. Most traditional loans require an initial payment of 20% of the property cost. College graduates, newlyweds, first-time homeowners and people with low income generally cannot afford a 20% down-payment.

Since an FHA-insured loan requires only a minimum cash investment, it is ideal for people who haven't been able to save enough money for the purchase. First-time home buyers and people who may have been denied for a conventional loan will definitely benefit from an FHA-insured loan. Also, if you can't apply for conventional loans because of bankruptcy or foreclosure, you may still be able to qualify for an FHA loan.

FHA loans are very popular since they allow greater flexibility in calculating payment ratios and household income. In general, to be eligible for an FHA loan, you must have a valid social security number, be a US resident, and old enough to get a mortgage in your state.

FHA loans - What's the catch?

First of all, the properties have to be appraised by an FHA-approved appraiser, and they must meet certain conditions. However, the biggest disadvantage is the mortgage insurance premium (MIP). There are two kinds of MIPS, and both are required: one is the upfront mortgage insurance premium (UFMIP), which is financed into the mortgage (it increased from 1% to 1.75% in 2012), and the other is the annual MIP (which is actually paid monthly).

As of June 2013, mortgage insurance premiums must be paid for 11 years in loans which the original loan-to-value (LTV) is 90% or less. If the loan's starting balance is higher than 90% of the appraised value, the MIP will last the lifetime of a loan.

What are the disadvantages of an FHA loan?

Since an FHA has a very low down-payment (which can be as low as 3.5%), you will end up paying more interest than if you had a conventional loan with a 20% down-payment. This is a very important factor to consider when looking for a mortgage. If you are financially capable of paying 20% for a down-payment, then you should strongly consider opting for a conventional mortgage since it will save you a lot of money in the long run.

Plus, on top of the 1.75% upfront that you'll have to pay in insurance, you can't cancel the annual mortgage insurance premium, like you could before June 2013. In contrast, conventional loans let you cancel the insurance policy when you have enough equity.

How does an FHA loan differ from a conventional mortgage?

An FHA loan is different from a conventional mortgage in important ways. A conventional mortgage is not insured by the FHA, so it’s harder for you to qualify if you’re not the type of ideal buyer lenders look for.

Some of the key differences between an FHA loan and a conventional mortgage include the following:

FHA loans have different down payment requirements. You can get an FHA loan with a down payment as low as 3.5%. Most conventional lenders require you to put at least 5% down, although a few lenders will let you get a mortgage with just 3% down.

You can get more down payment help with an FHA loan. The FHA permits financial gifts or down-payment assistance from an approved source to provide up to 100% of the down payment, while some conventional lenders restrict the amount of your down payment that can come from a gift.

You can qualify for an FHA loan with a lower credit score. Many lenders require credit scores of 640 or higher to obtain a loan, while the FHA allows loans with credit scores as low as 500.

FHA loans typically have lower interest rates. When interest rates are lower, your loan can cost less over time.

FHA loans have different insurance requirements. Borrowers who get an FHA loan must pay an upfront mortgage insurance premium and annual mortgage insurance premiums. With a conventional loan, private mortgage insurance is typically required if a borrower puts less than 20% down — but there’s just one premium paid on a monthly basis. There are also different rules for when you can stop paying insurance, and you usually have to pay insurance for longer with an FHA loan.

Sellers can help with closing costs for an FHA loan. The FHA allows home sellers to pay up to 6% of the closing costs for a loan. Many conventional lenders cap a seller’s contribution at 3% of closing costs, although some allow sellers to pay up to 6%.

Begin the application process.

If you believe you qualify for an FHA loan and are ready to apply, the first step is to get pre-approved with your lender of choice.

Get pre-approved for an FHA loan online now »

As you have read above there are many options to the versatile FHA loan. There are pros and cons of choosing an FHA mortgage. To help you navigate the FHA landscape and perhaps other loan options, we suggest you contact one of our mortgage advisors to answer all your questions. There is no fee nor obligation to do so. We are here to serve you and consult with you with complete transparency and your best interest in mind. Call us today!

New Construction vs. Existing Home: Why New Might Be Better

3 Ways That Buying a New Construction Home Beats Buying an Existing One, Every TimeAre you in the market for a new house? Whether you are a first-time home buyer or are upgrading to get more space, you will need to choose between buying an existing home or building a brand new one. As you might imagine, there are pros and cons to each kind of home. But if it is in your budget, you may want to lean towards a newer home over an older one. Let’s explore three reasons why new construction homes are better than existing homes.

Customize Every Aspect To Your Tastes

Ask anyone living in a custom-built home and they are likely to tell you that the ability to customize everything was a major deciding factor. When you build a brand-new home, your input isn’t limited to the floor plan or room layout. Your family can choose everything from the paint colors to the door hinges. Imagine having your pick of appliances, cabinets, flooring, and trim in every room – that’s what new construction is all about.

Modern, Efficient And Convenient

A brand-new home means a home that is energy-efficient and built for convenience. Your home can be designed with as much advanced technology as you have in mind. Seamless Wi-Fi and other wireless connectivity for all your devices. A cutting-edge video security system to keep your family safe. Efficient heating and cooling that offers superior indoor air quality. And, of course, lower energy costs and a smaller carbon footprint.

If you are a fan of technology and the conveniences it can provide, a new construction home is a perfect choice.

Many Years of Trouble-Free Living

Another benefit of living in a new home is that everything around you far less likely to fail over the next few years. Moving into an older home means worrying about the roof, the electrical wiring, the appliances and a whole host of other potential problems. In a new construction home, you will be surrounded by brand-new machinery that is built with the future in mind. Also, even if you do run into any issues with your home or appliances, it should all be under warranty.

If you’re ready to discuss financing options for a new construction home, contact us today. Our professional mortgage team is happy to help.

Why New Construction Homes Are A Top Choice For Today’s Home Buyer

Did You Know: Why New Construction Homes Are A Top Choice For Today's Home BuyerAre you in the market for a new house? If so, you may have been comparing your options when it comes to open listings on the local market. One decision you will need to consider: do you want to purchase an existing home or build a new one? Let’s explore a few reasons why new construction homes are a popular choice for today’s home buyer.

A Home Designed (By You) With The Future In Mind

Ask anyone who has recently invested in a brand-new home, and many will share that all of the built-in technology was an essential factor. Today’s homes are designed with the future in mind. High-speed networking, better wireless connectivity, high-tech security and other features are all benefits that typically can’t be found in older homes.

Of course, don’t forget that you play a role in the design choices in a new construction home. It is your chance to design all of the features you would want in a dream house.

Energy And Cost Efficient

As you might imagine, homes constructed with modern designs and materials are vastly more energy than older homes. Tighter seals, better insulation and more efficient heating and cooling all translate to lower utility costs. Moreover, while the savings per day might seem small, over time, they add up. Leaving more money in your pocket for investment, saving or other purposes.

If you want to take it a step further, you may even decide to expand your new construction home with solar panels or other high-efficiency upgrades.

Less Maintenance Means More Free Time

Finally, you can sleep soundly knowing that a new construction home needs far less maintenance work than an older home. Of course, there will still be the occasional job that needs taking care of. So you will want to be diligent in fixing up any damage or issues that do occur so that the problem does not spread. But overall, you can expect to spend less of your free time repairing things and more of it relaxing and enjoying life.

These are just a few of the many great reasons to invest in a brand-new home. To learn more about financing a new construction home, contact us today. Our professional team is happy to discuss your needs.

Buying in 2018? Get Your Down Payment Ready Now by Tapping These Helpful Sources

Buying in 2018? Get Your Down Payment Ready Now by Tapping These Helpful SourcesAre you in the market for a new house or condo in 2018? With the new year just around the corner, now is the time to get all of your financial details in order. As you may know, buying a home is a significant financial transaction. But it all starts with your down payment, which is the lump sum that you invest in order to purchase the home. In today’s blog post we will share a few sources of funds that you can tap into for help saving up your down payment.

Peer Into Your Financial Future

A helpful first step is to map out your financial future. Do you have any lump-sum payments such as an annual bonus or a tax return coming up? If so, those are excellent sources of funds to help build up your down payment.

Put A Stop To Unnecessary Spending

Anytime you want to save money, an obvious step is to cut as much unnecessary spending as you can. Invest the time in creating a strict monthly budget which includes setting money aside for your down payment. Be sure to watch for any daily habits that are eating away at your savings, such as high-priced specialty coffees or eating out regularly.

Research Local Homebuyer Assistance Programs

Don’t forget that you’re not alone in your quest for home ownership. There are numerous federal, state and municipal homebuyer assistance programs that offer financial help when buying a home. Your local real estate professional will be happy to share some insight.

Check In With Your Employer

Finally, don’t forget to check in with your employer to see if there are any home ownership grants or subsidies. Down payment and home-buying assistance programs are becoming more popular with companies as an extra perk to offer employees. Send a quick email or stop by the human resources department to let them know you’re in the market for a home and to see if any programs are on offer. If your workplace does have a program like this, it’s the perfect time to take advantage.

Having your down payment funds ready will make the buying process faster and show your mortgage lender that you’re prepared for home ownership. For more information, contact your trusted mortgage professionals. We’re happy to share some amazing listings that perfectly suit your needs.

4 Questions to Find Out If You Are Ready for Home Ownership

Are You Ready for Home Ownership? Find Out by Answering These 4 QuestionsHave you been dreaming about a larger, roomier or more luxurious living space? Or perhaps just want to experience the joy of owning your own home and building your net worth instead of renting? Let’s explore a few questions that can help to answer whether or not you’re ready for a new lifestyle as a homeowner.

Can You Realistically Afford To Buy A Home?

The first consideration to make is a financial one: can you afford it? Buying in a home is a significant financial investment. In most cases you’ll need to manage monthly mortgage payments for many years. The good news: owning a home is more affordable than you might think. If you’re already a stable renter then you’re most of the way there.

Do You Have Your Down Payment Saved Up?

If you’re confident that monthly payments are no problem, then the next step is saving up enough to cover your down payment. This is a lump-sum investment that you make when you buy the home. Typically your down payment is around 20 percent of the home’s cost, but there are assistance programs which can reduce this further.

Do You Know What Type Of Home You Need?

Once you’ve cleared all of the financial hurdles, you will next need to decide exactly what kind of home you need. If you’re a single young professional, a condo or apartment might be the perfect starter home from which you can upgrade later. Or you might prefer something more rural which comes with more yard space, perfect for pets.

Are You Ready To Set Down Some Roots?

Finally, it’s worth taking some time to decide whether or not you’re ready to emotionally and physically invest in your local community. Is your career stable enough that you won’t be moving for at least a few years? What about that of your partner or spouse? If you don’t already, do you envision having children in the future? All of these are considerations that will help you choose the right neighborhood.

When you are ready, our professional mortgage team is here to help you finance the home  of your dreams.

Buying a New Home? Make Your Move Easier With These 3 Purging Tips

Buying a New Home? Make Your Move Easier With These Three Purging TipsAre you thinking about buying a new house? While the prospect of a new home is undoubtedly exciting, you may be dreading the thought at having to pack everything up and move. In today’s blog post we will explore three tips for purging old, unwanted or forgotten items before making a move into a new home.

Sort Everything That You Don’t Need

The first step you will want to take is to sort everything in your home. Many families go through the house, room-by-room, separating their must-have items from everything else. At first, this process is quick as there are many items just sitting around waiting to be thrown out. However, you are bound to find some older keepsakes that are much harder to let go. In the end, you’ll want to ensure that you only keep those goods that are important to you. Everything else should go.

Host A (Virtual) Yard Sale And Consider Consignment

Now that you have everything in your home sorted, it’s time to host a yard sale. If you are so inclined, you can run a traditional sale where you place everything out on the lawn on a Saturday morning and put up signs to let the neighborhood know. Alternatively, you can run a virtual yard sale through the web and app-based classifieds like Craigslist.

You may also want to consider calling up local consignment shops to see if they’ll take some of your unwanted goods. A consignment store will sell your items for you and keep a portion of the sale price as a fee. This can be a useful option if you have antiques or other goods that are more popular with an older crowd.

Donate Everything Else

Is there anything left in your home? If so, it’s time to hand over this last bit of unwanted clothing, furniture or appliances to your local charity. Many charitable organizations will come and pick up your unwanted items, which saves you from having to drive a load of stuff over somewhere to drop it off. Call up your charity of choice and see if they accept donations. If not, they will be able to refer you to other local organizations that are interested.

Purging your older or unwanted items is a surefire way to make your move easier. If you’re in the market for a new home and need information about financing your new home, contact us today. Our professional team is happy to help you.

3 Key Flaws to Watch Out For in an Older Home

Buying an Older Home? Watch Out for These 3 Key Flaws That Could Spell TroubleAre you a fan of homes with a bit more character than newer, modern designs? Whether in pristine condition or more of a “fixer upper,” older homes are incredibly popular in cities across the country. However, there are some key factors to consider if you’re thinking about buying a home built decades ago before modern standards were enforced.

Old Electrical Designs Can Be A Significant Fire Hazard

No matter when a home was built, it’s almost guaranteed to have electrical wiring running through walls to supply rooms with lighting and power outlets. However, if the wiring was run in decades past it may be with older cords that are less able to withstand a modern workload. A quick check of the circuit-breaker panel or fuse box and the wires leading from it can give an idea just how old the wiring is. As older designs can be a fire hazard, you will want to ensure the wiring is up to date.

Poor Plumbing Design Can Lead To Rot Or Worse

Plumbing can also be an issue in older houses – especially those in states that experience a cold winter. Water pipes tend to expand and contract due to temperature, which can lead to stress and leaks over time. Moreover, even though older pipes are typically made of metal, they can still wear out. The last thing you need is to wake up to a flooded basement, so be sure to have the plumbing professionally inspected.

Is The Roof And Insulation Strong Enough?

While the roof might look solid from the outside, it may not be as well put together on the inside. Even the smallest of holes or leaks in roof membrane can wreak havoc on the structural integrity of the roof. It’s worth spending some time in the attic to inspect the inside of the roof, the condition of the insulation and how well the entire structure is holding up.

While the above list might sound a bit scary, it isn’t meant to turn you away from buying an older character home. If you’re diligent in checking out the home’s history and invest in a professional inspection, you’ll stay safe. When you’re ready to explore a mortgage for a character home, contact us today.

Why Mortgage Pre-Approval Should Be The First Step When Buying a New Home

Buying a New Home? Here's Why Mortgage Pre-Approval Should Be Your First StepAre you thinking about buying a new house, condo or apartment? Whether you are upgrading, downsizing or investing, if you intend on borrowing the funds you’ll need to be pre-approved for a mortgage. In today’s blog post we’ll explore mortgage pre-approval and why this should be one of your first steps in buying a new home.

Pre-Approval Helps To Determine Your Budget

Do you know your budget? Mortgage lenders consider many factors when deciding how much they are willing to lend to a home buyer. While your employment status, salary, assets and credit rating are important, they are all pieces of a larger puzzle that help a lender to determine your risk. So regardless of how spotless your credit rating might be, you’ll want to get pre-approved for a mortgage before trying to figure out your total purchase budget.

The size of your down payment will also be a factor in determining your overall budget. If you still have a bit of time before you’re ready to buy a home, continue to put money aside for your down payment. The more you have, the less you’ll need to borrow.

Once Pre-Approved You Are Ready To Make An Offer

Once you’re pre-approved for your mortgage, you’re ready to submit an offer for the home. Note that you do not need to bid high just because you are approved for a large mortgage. Work with your real estate agent to determine the right asking price for the home. Submitting a bid that’s a bit lower than you’re willing to pay leaves you with a bit of room in case the seller makes a counteroffer.

Many Sellers Will Demand Pre-Approval

Finally, don’t forget that many sellers will require that you are pre-approved for mortgage financing before they’ll accept a bid or offer. Many listings end up receiving multiple offers, especially those in hot real estate markets or popular communities. So if you table an offer without pre-approval, you may find that it is rejected in favor of another buyer who is ready to go.

Once you’ve been prequalified for mortgage financing, pre-approval is the final step in the process before you’re ready to make an offer and purchase your new dream home. For more information about the pre-approval process, contact us today.

Four Mistakes to Avoid When Making an Offer for Your Dream Home

Four Mistakes to Avoid When Making an Offer for Your Dream HomeYou’ve scoured the new home listings, been to all the open houses and have finally found the home of your dreams. It is now time to draft an offer and begin the negotiation process. Below we’ll share four mistakes that you will want to avoid when making an offer on your dream home.

Mistake #1 – Not Working With A Professional

The first mistake that home buyers make is trying to buy a home without using the services of a real estate professional. Buying a home is a significant financial transaction and one where the seller and their agent are working hard to ensure they come out ahead. Having experienced representation on your side of the table ensures that you won’t be taken advantage of.

Mistake #2 – Skipping The Home Inspection

The second mistake – and one that is more common than you think – is skipping the home inspection. There are countless instances of home buyers thinking that the house looks great on the outside without realizing that there are issues with the roof, the foundation, the plumbing, inside the walls or some other area that’s tough to see. Having the house professionally inspected before tabling an offer ensures that issues are fixed up before the transaction is complete. Alternately, if you’re willing to move ahead regardless, you can ask for the price to be reduced as compensation.

Mistake #3 – Not Being Pre-Approved For Financing

The third mistake in our list is making an offer on a home without being pre-approved for the amount of mortgage financing you will need. Regardless of how good your credit is, the mortgage application process is one that can present challenges. Also, many home sellers will require evidence of financing pre-approval before accepting an offer, so it’s best to come prepared.

Mistake #4 – Taking On Other Debts

Once you’ve decided on the home you want to purchase, you will want to avoid taking on any other debts which can affect your credit score. Don’t buy a car, open any new credit cards or do anything else which will show up on your credit report. Once you are pre-approved for your mortgage, you’ll want to keep your credit as spotless as possible to ensure that nothing goes wrong.

If you’re prepared and clear-headed, the offer process will go smoothly and you’ll soon be moving into your dream home. When you’re ready to explore financing options, contact us today.

How to Get a First Time Home Buyer FHA Loan

first time home buyer fha loan

Are you looking to own your part of the American dream? Want to have a place to call your own?

About 32% of all residential sales in 2016 were first-time home buyers.

Buying a home is a huge step in life. As a first-time home buyer, chances are you’ve already started the search for your perfect house. But before you can purchase a home, you’ll need a lender.

One loan to consider is the first time home buyer FHA loan. FHA loans are attractive because of the low down-payment requirement. These loans also offer more flexible qualification requirements.

Want to apply and get approved for the first time home buyer FHA loan? If so, keep reading! We’ll cover 3 tips that will increase your chances of getting approved.

1. Know What’s Affordable

As a buyer, your mantra should be to buy a home that’s financial comfortable for you. While you may want a huge home with a lot of land, being strapped for cash because of your mortgage payment isn’t ideal.

With FHA financing, your mortgage payment cannot be more than 31% of your monthly income.

Before you start shopping, know what you can afford. Use a mortgage payment calculator to combine your existing expenses with a home payment.

When determining your price point, ensure you have money to set aside. As a homeowner, there’s always the risk of appliances breaking. Your monthly budget should allow you to set money aside in an emergency fund.

2. Know & Improve Your Credit Score

As with any mortgage loan, your credit score impacts interest rates. It will also impact down payment percentages as well as loan amount.

FHA loans can be approved with a down payment as low as 3.5%. But, to get approved for this percentage, your credit needs to be above 580. A score of 579 and below requires a down payment of 10% or more.

Before applying for an FHA loan, be sure that your credit is in good standing. To maintain or improve your credit score:

  • Pay down credit card balances
  • Pay bills on time
  • Fix any errors
  • Clear up any collection accounts

Once you’ve applied for a loan, you’ll want to avoid applying for any other loans or lines of credit. Otherwise, your score will drop.

3. Save Towards a Down Payment

With the first time home buyer FHA loan, you’ll need to come to the table with a down payment. The amount will depend on the total cost of the home as well as the approved percentage.

As an FHA borrower, you can use various funds as part of your down payment. For example, you can use money from your savings account. Aside from your own money, you can also use funds from:

  • A state or local grant
  • Cash gifted from a family member or close friend
  • A charitable organization

With gifted funds, a letter must be provided. The letter has to state that there is no expectation of repayment. The letter must also disclose the nature of the relationship.

First Time Home Buyer FHA Loan: Wrap Up

The FHA first time home buyer loan is an attractive option. To best position yourself to get approved, follow the tips above.

Of course, you don’t want to go through the home buying process on your own. You’ll need a real estate agent to show homes. You’ll also need a lender who can help you throughout the mortgage loan process.

If you want a committed team of mortgage professionals, look no further than Benchmark Mortgage.

We’re experienced in FHA loans as well as VA, USDA, and conventional loans. As a first-time home buyer, we know how confusing the process can be.

Our team will make home buying easy!

Now’s your chance to start your American dream. Contact our team today to discuss your needs.