3 Things First Time Home Buyers Need to Know About the FHA Loan Application
The FHA mortgage program is designed to help first-time homeowners buy the house of their dreams.
But you don’t have to literally be buying your first house to use this program. A first-time homeowner is anyone who hasn’t owned their own house for at least three years.
If you’re part of that group, the FHA program can help you get settled again. Unfortunately, the application process can be a little overwhelming.
So here are the three main things you need to know before filling out an FHA loan application.
1. You Don’t Have to Make a Big Down Payment
Most conventional loans ask for a large down payment that can be as high as 20%, but the FHA loan program isn’t like that.
They only require a down payment of 3.5% of the homes purchase price. That is a lot more doable than 20% right off the bat.
And it gets even better.
The down payment money can come from any sources you want. For traditional lenders, the money must come from your savings or other investments, and before you can even pay, you have to have documentation that you’ve had the money for 60 days.
The money for your FHA loan can come from a regular paycheck, a tax refund, a bonus, or any other way. This makes it a lot easier for first-time buyers to meet application requirements.
2. FHA Doesn’t Actually Loan Money
That’s right. FHA doesn’t actually lend any money to homeowners (or borrowers). They just insure loans that are offered by things like banks, mortgage brokers, and credit unions.
If one of those places offers a mortgage that follows FHA rules, that loan is insured against any kind of default.
That said, FHA has generous loan limits.
In fact, it usually allows people to borrow over $250,000.
This isn’t an exact number and can change depending on the state or city you live in. Also, not all borrows will qualify for that amount, so it also depends on your specific situation.
3. You Don’t Have to Have an Outstanding Credit Score
Of course, you can’t have an awful credit score, but don’t turn away from an FHA loan application if you think your credit score will be a problem.
While most loans require borrowers to have a credit score of at least 700, FHA has granted loans to people who have credit scores that are as low as 620.
The FHA program is very understanding of personal problems. Even if you have declared bankruptcy in the past, you can still get an FHA loan two years after the discharge date.
As long as you don’t have any general liens, like tax liens or defaulted student loans, you can usually get an FHA loan.
Fill Out an FHA Loan Application
An FHA loan application isn’t like traditional loans. If you are worried about not having enough money for a down payment or not having good enough credit score, an FHA loan can make all the difference.
Need help keeping all the types of FHA refinancing loans straight? Take a look at this article.