Don’t you just hate being stuck in an apartment, or just renting in general, but you feel like there is no way you could qualify for a home? Are you ready for the next phases of your life living in a house of your own, but you don’t feel confident getting the finances to make that dream a reality? Maybe it’s your lack of financial resources or your FICO score is far from perfect. It could even be that debt you’ve been trying to pay off or a past bankruptcy you are trying to recover from. You might think you have no options for becoming a first time home owner, you and your family are stuck where you are at, but in this article you will learn that getting the keys to your first home could be easier than you thought.
You might not have heard of it or maybe you just didn’t think it pertained to you, but for a first-time home buyer getting an FHA loan just might be the thing that gets you into your dream home. It doesn’t have to cost you an arm and a leg to qualify; it can actually be easy and hassle free. The first step in deciding if an FHA loan is right for you is to understand exactly what FHA loans are. The FHA, or Federal Housing Administration, is an agency within the U.S. Department of Housing and Urban Development. The FHA provides mortgage loans to people wanting to buy a home, but don’t have the best credit history (low credit score) or can only afford a low down payment.
This type of loan is less strict then a traditional loan and because of that it is a very popular option for many different people. FHA loans were created in response to foreclosures that happened in the 30’s, in an attempt to make affordable loans to those who wouldn’t qualify otherwise. The government provides FHA- approved lenders with these loans as a way to lower the risk of a borrower stopping payments, causing a loss for the government.
The obvious appeal of this type of loan is the ease of qualifying. There are a few requirements to qualify; one of those being a down payment of 3.5% with a minimum credit rate or 580. If your credit score is 500-570 you will need a minimum down payment of 10%. However, just like traditional loans, the lower the credit score and down payment is, the higher the interest rate will be.
Another requirement is having a steady job with a steady income. You should either have a steady work history or have worked at one job for at least 2 years. You must also be a lawful resident in the US and be the legal age to sign a mortgage in the state you reside in. As a borrower, your mortgage payment plus HOA fees, property taxes, mortgage insurance, homeowners insurance must be less than 31% of your gross income, and your mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc should be less than 43% of gross income.
A borrower must be at least 2 years out of bankruptcy and 3 years out of foreclosure both with re-established good credit. In both cases exceptions can be made if there were extenuating circumstances. Lastly the property has to meet certain standards at appraisal. If the home you are buying needs repairs either the seller can pay for these repairs or you must pay yourself at closing and the home will be held in escrow as the repairs are made.
Aside from the ease of acquiring this loan, there are some other benefits associated with the FHA loan. Maybe after some time in the house you bought with an FHA loan, you’ve decided it is time to move out. Perhaps you’ve built some equity in your home and you are ready to trade up. The good news is a buyer can “assume” your FHA loan when purchasing your house. This means the purchaser of the property can essentially take over mortgage payments from the seller. FHA loans and VA loans are both the most common loans that can be assumed. The new buyers will still have to get a credit approval from a mortgage lender as a way for the lender to regulate if the purchaser is credit-worthy. There are both pros and cons to this method of selling and its best to look at your own personal situation to decide if it is right for you, if you do end up selling.
When looking into this type of loan, it is easy to get caught up in all the good. You might wonder to yourself if this is too good to be true. While I assure you this is the real deal, there are some aspects of this loan that some might consider to be downsides. One of them to take into consideration is the fact that FHA loans need not 1, but 2 mortgage insurances. The two types of insurances are one that needs to be paid upfront and one you pay monthly. The paid upfront insurance is called upfront mortgage insurance premium (UFMIP). This will be paid at closing or can be added into your monthly mortgage payments. With it you will be required to pay 1.75% of the home loan regardless of your credit score. The insurance you will pay monthly is called Annual MIP. The amount you pay for this insurance will be added into your monthly mortgage payment. This amount will be a percentage of the loan amount. The percentage is based on the borrowers loan-to-value (LTV) ratio loan size, and length of loan. If the LTV is higher than 90% at the time the loan was created, you must pay the insurance the entire length of the loan. If under 90%, you will pay for 11 years or the length of the mortgage term, whichever comes first.
If you find the only thing holding you back from this loan is a credit score under 500, don’t count yourself out just yet. There are many resources out there to help you get on track to repairing your credit. You can say goodbye to bad credit for good. First check your credit report, then if you can learn some useful tips to improve your credit score to above 500.
They provide helpful tips, advice, and assistance and never hesitate to answer any questions you may have. You might be leery to try online credit repair, but relying on these credit repair experts to do most of the work will save you time and unwanted stress. They have access to information that would otherwise be hidden; having this can really help your chances of improving your credit. Another benefit in using these professionals knows they have a good standing relationship with the credit repair bureaus allowing them to resolve difficult issues by contacting the agency directly. So far it doesn’t sound so bad, sign up and have someone help you get better credit, what’s the catch? Well unfortunately these companies aren’t free to work with.
They can charge anywhere from $30 to $100 a month. Typically it will take around 3 to 5 months to repair your credit so you could end up spending up to $500 in total. However, when it comes to such a sensitive matter you should feel more confident working with a company that is charging you. If it were free, you might not get the best quality in service or results. Paying for the service can assure you they are working hard to get you the best results possible. Another thing to consider is the benefit of repairing your credit. In the end having a higher credit rate not only helps you qualify for more, but helps you get lower interest rates, therefore lower payments. If you think about all the money you will save in the future from having an improved credit score, I’d say it is worth the cost in the end.
If after reading all of the above you are telling yourself “this sounds great, I think this is right for me!”, then the next step is to contact a lender and apply for the loan, then make an offer. The lender used must be FHA approved in order to apply. There is a loan limit size at the price of $729,750 with a 3.5% down payment. At the current time, you can get conventional financing for a loan bought by Fannie Mae or Freddie Mac for $625,000. So, if you are still saying to yourself, “I am ready” you can now go into this home buying journey with the knowledge and the confidence to get your dream home without the hassle and stress of a conventional loan. Why not try it today?