FHA Home Loans and How To Get One
If you're considering buying a home it's important that you understand all of your different financing options. Most people don't realize that there are a few different types of Home loans. So let's start with an FHA mortgage and go through what that actually means to you.
What is an FHA Home Loan?
FHA stands for Federal Housing Administration. An FHA home loan is a federally insured mortgage. What does this mean? Well it means that the federal government will guarantee that Mortgage to the bank in case the borrower has trouble repaying a loan.
The purpose is the FHA home loan is to help people to qualify to buy a home or otherwise might not qualify. FHA is much more lenient with your credit scores, and much more flexible when it comes to your debt to income ratios. The guidelines for an FHA mortgage make it easier for the bank to approve you so that you can buy a home.
Is it hard to get a FHA loan?
A common misconception is that most people think FHA is a first time homebuyer loan, but it's not. Anybody can Purchase a home with an FHA home loan, as long as they do not already have another FHA loan. You can only have one at a time. But you do not have to be a first time homebuyer.
Whats the difference between a convetional loan and an FHA Loan?
With a traditional or conventional mortgage, typically you're going to need a credit score closer to 700 and you're typically going to need between 10 and 20% down or, but with an FHA mortgage some banks will actually go as low as a 600 credit score and they will be much more lenient when calculating your debt to income ratios, meaning that you can have a higher debt level with an FHA home loan.
What are the benefits of an FHA Home Loan?
The other benefit of an FHA loan is that if you do have a lower credit score you can still qualify for a competitive interest rate. For example if your credit score was maybe 640 or 660, it would be very difficult for you to qualify for a conventional mortgage, and even if you did you would get a much higher interest rate than what you would get with an FHA loan.
How much is the down payment for an FHA mortgage?
OK that's another one of the nice features, with FHA you only need to put down 3.5% of the purchase price, whereas traditionally you might put down 10 or 20% with a conventional mortgage.
Which homes qualify for FHA?
That is a very important question, most people don't realize that the property itself must also qualify for FHA. It's all about the condition of the home. It's OK if the home is dated may need some TLC, however everything has to be safe and functioning. Some of the things that FHA may look for or peeling paint, they do not wanna see any peeling paint in the home. Missing handrails, that's a safety issue smoke detectors, grounded electrical outlets, FHA will also look at the condition of the roof to make sure it still has a few years of life left in it.
How do you qualify for an FHA mortgage?
As with any mortgage, the basics still apply. Get togther your banks statements, paystubs, pay down your debt as much as you can, get together as much money as you can, then, like we said in some of our other articles about getting qualified, the first step is to choose a good real estate agent who has knowledge and experience working with buyers who purchased using an FHA home loan, and that agent will connect you with a reputable local lender who again is also familiar with the process.
Here in the Lehigh Valley housing market there are many homes that may qualify for an FHA mortgage, if you'd like more information please feel free to reach out to us and we will be happy to help!