FIRST-time buyers can apply for a Federal Housing Administration (FHA) loan to get their hands on the real estate ladder.
We explain what you need to know about it and who qualifies.
What is an FHA loan?
A Federal Housing Administration loan is a mortgage insured by a government agency and issued by an FHA-approved lender.
In other words, the mortgage is guaranteed by the FHA, but the lender is the one giving the cash.
The loans, available since 1934, are designed for low to moderate income borrowers.
They require a lower minimum down payment and lower credit score than many other traditional mortgages.
Because the FHA will pay a required amount to your lender if you default on your mortgage, lenders take on less risk than usual.
However, you also agree to accept some risk by paying two mortgage insurance premiums (MIPs).
The upfront insurance premium is set at 1.75% of the loan amount, while the rate you pay over the entire mortgage term depends on how much you borrow.
FHA loans are for first-time buyers, but those 62 and older who have paid off their mortgage or have a low balance can get an FHA reverse mortgage.
This allows you to convert some of the equity in the home into cash.
Am I eligible?
To qualify for a home loan, you must have a steady work history in the past two years.
If you are self-employed, you usually need two years of successful income and proof of that.
You must also have a valid Social Security number, legally reside in the United States, and be of legal age (according to your state law) to sign a mortgage.
In addition, to ensure loans are affordable, the standard debt-to-income ratio is 43%.
This means that the total monthly repayments cannot exceed 43% of what you earn each month.
How much can I borrow?
In 2021, you can borrow up to 96.5% of your home’s value with an FHA loan, meaning you only need to pay 3.5% up front.
For example, if your property is priced at $340,000, you will need to put down at least $11,900.
To qualify, you need a credit score of at least 580.
If your credit score is below 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment.
With FHA loans, your down payment can come from savings, a financial gift from a family member, or a grant to assist with the down payment.
For 2021, the floor limit for single-family FHA loans in most countries is $356,362, up from $331,760 in 2020.
For high-cost areas, the cap is $822,375, up from $765,600 a year ago.
These limits are called “ceilings” and “floors” that the FHA will guarantee, and change annually depending on home prices.
Is there any help for first-time buyers?
STARTING on the real estate ladder can feel like a daunting task, but there are programs available to help first-time buyers. Below we round up the top options:
Federal Housing Administration (FHA) loans: Managed by the Federal Housing Administration (FHA) FHA loan program. This can be a good mortgage option if you are a first time buyer as the requirements are not as strict as other loans.
Homeownership slip: The program provides grants to use toward home purchases to low-income Americans who are first-time homebuyers. For more information, contact your locality Public Housing Authority (PHA).
Nice neighbor next door: Some teachers, emergency personnel, and law enforcement officers can take advantage of Good Neighbor Next Door Program. It offers select assets 50% off. In return, you must commit to living in the property for at least 36 months.
State program: Housing authorities in many states offer help in the form of a combination of closing cost and down payment assistance programs with favorable mortgage rates. To find out what’s available to first-time buyers in your area, contact your state directly.
How to register
The FHA does not offer direct loans, so you will need to apply through an FHA-approved lender.
Even so, most major banks and mortgage lenders offer loans, so you should be able to easily find one.
After finding a lender, the next step is to submit a loan application.
Many loan companies allow you to apply online, although some will connect you with a loan officer to complete your application by phone or by email.
Since mortgage terms, rates, and criteria vary between lenders, be sure to contact multiple lenders to compare offers.
Some borrowers are owed a partial refund of their prepaid mortgage insurance premium if they don’t default on their FHA loans.
Meanwhile, the homeowner can get more than $3,000 per year in mortgage rebate thanks to stimulus aid.
Also, a “secret” stimulus check is help homeowners pay their mortgage, taxes, insurance, and utilities – but you have to ask for it.
https://www.the-sun.com/money/3103529/what-is-fha-loan-who-qualifies/ What is an FHA loan and who qualifies?