Perhaps an FHA loan could be the lifesaver for a first-time home buyer. With a home loan that presents low down payment and attainable credit qualifications, it’s all worth looking into.
According to the National Association of Realtors, 35% of all home buyers are first-timers in 2016. And as 2017 opens up to its second half, the numbers are still as significant.
With high mortgage rates and an equally higher standard down payment requirement, buying a house could seem like a pipe dream to some. Thanks to the Federal Housing Administration, buying a house could be easier for first-time and modest-income buyers.
Here are some guidelines that need to be considered before applying for an FHA loan this year:
Getting an FHA-insured mortgage doesn’t have a minimum salary requirement but there are other qualifications that need to be met like having two established credit accounts, a clean record of federal debts or past FHA-insured mortgages and verified cash gift accounts that help with the down payment.
Debt-to-income ratio and Credit Score
To qualify, DTI ratio should be at 50% or less which includes credit cards, student loans, monthly dues and the new mortgage. FICO credit score should be at least 500 but a much higher credit score qualifies you for a much lower down payment.
FHA’s minimum down payment is at 3.5% for a 580 or higher credit score. If your credit score is at 500-579, down payment is generally at 10%.
The geographic location is a factor for FHA loan limits. This year single-family homes are generally $275,665 in low-cost areas and $636,150 in high-cost areas. Limits also vary in specific locations like Alaska, Guam, the Virgin Islands and Hawaii.
Of course, there are official documents that you should secure to back up your FHA home loan application. The most important ones are your proof of a Social Security number, original pay stubs, valid tax returns or W-2 forms. There should be more depending on your situation and this is usually discussed through an FHA-approved lender.
But before jumping into a decision, try to weigh in first if getting an FHA loan is the perfect fit for you. Educate yourself on the pros and cons of this provision or seek advice from experts who are always willing to help.