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FHA Qualifications

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FHA Qualifications

An FHA loan usually requires the lowest down payment when purchasing a home, only 3.5% of the sales price. It also allows for lower scores than conventional loans, usually down to a 580. You may be able to roll your closing costs in to your loan. The home must be the borrower's primary residence. FHA is often the best loan program for first time home buyers. If you already have an FHA loan, you can refinance with FHA Streamline to lower your interest rate.

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Are you considering purchasing a home using an FHA mortgage loan? FHA mortgages are great for homeowners who might not qualify for a conventional home loan due to credit history or lack of down payment. If this describes your financial situation, FHA mortgage loans are an excellent vehicle for achieving your goal of home-ownership. If you’re ready to get started applying for your FHA mortgage today contact one of our dedicated loan specialists for personalized assistance. Here are the basic FHA qualifications you need to be aware of before applying.

FHA Loan Qualifications

Have you struggled with credit challenges in the past or have trouble saving money for a down payment? If you have a tight budget saving for a mortgage loan down payment can be next to impossible to achieve. FHA loans are a great option for borrowers in this situation thanks to relaxed requirements for credit score and down payment. Thanks to these relaxed FHA qualifications getting approved for an FHA home loan is easier than ever. 

The process for applying and FHA qualifications for getting your home loan approved are not that much different than getting a conventional mortgage loan. You need to meet the minimum credit score requirements of 620 and have a sufficient down payment based on your credit score. If your credit score is less than 620 you will need to put down ten percent of the purchase price of your new home. That down payment amount goes down to 3.5 percent if your credit score is above 620.

In addition to having the required down payment you will need to document sufficient income to repay the loan. This is usually done with pay stubs or w-2s from your employer. Mortgage lenders use your income to calculate your debt ratio. Your debt ratio includes all of credit cards, student loans, car loans and anything else found in your credit reports. This is one reason why it is so important that your credit reports reflect an accurate picture of your finances. Your loan specialist can explain how your debt ratio affects current interest rates and program requirements for loan approval.

If you are self employed and have trouble documenting income there are exciting new programs for stated income and bank statement loans that can get you approved based on self employment or investment income. The final requirement that you need to be aware of for an FHA home loan is that it must be your owner occupied primary residence. 

Improving your credit score before applying for an FHA home loan can save you a lot of money. Getting your score over 620 not only lowers the down payment requirement but will get you a lower interest rate. You can improve your score by paying down the balances on your credit cards. Pay all your bills on time and your score will improve. Avoid making late payments whenever possible as these are significant drain on your credit score. Many creditors will work with you if you are unable to pay the full amount due in each month while avoiding any negative reporting to your credit reports.

Another step you can take to improve your credit score is to review your credit reports for errors. Disputing inaccurate information on your credit reports can significantly boost your credit score and get you qualified for a much better interest rate. Industry experts recommend that you review your credit history for errors at least once per year. 

It is important to get the lowest interest rate possible because your payment will be higher due to FHA mortgage insurance. You will be required to pay insurance premiums upfront and as part of your monthly payment. It is this insurance that protects lenders from certain losses due to default that allows the FHA to approve borrowers without the down payment and credit requirements for traditional home loans. The insurance mitigates the lender’s risk. The downside is that you’ll have to pay for the insurance. 

You can offset the cost of mortgage insurance by bringing as much of a down payment as possible and improving your credit score. In the process of paying down your credit cards and saving for a down payment you might even discover your eligible for a traditional mortgage which will save you money in the long run.

Comparison Shopping for the Lowest Rates

The Department of Housing and Urban Development has stated that comparing three quotes from different lenders saves the average homebuyer $3,000 over the life of the mortgage loan. Comparison shopping isn’t as difficult as you might think, especially if you have help.

If you’re unsure how to get started comparison shopping for FHA mortgage rates and fees enlisting the help of mortgage broker is a great starting point. Brokers have access and contacts with a variety of lenders that offer FHA loans and understand which options will help you achieve your financial goals.

Do you find all this talk of interest rates and FHA mortgage insurance overwhelming? Dedicated loan specialists are standing by to help you find the right home loan to achieve your financial goals. Enlisting the help of a loan specialists not only saves you the legwork of comparison shopping but can explain how all the different of options of term length and interest rate types can be leveraged to meet your goals. Contact us today to get started on the right path to homeownership.

How to Get the Lowest Payment Amount

If you’re concerned that FHA mortgage insurance premiums could drive up your payment amount and are on a tight budget there are options for your home loan that can lower the payment. One option available is choosing a longer term length. Your home loan’s term length is the amount of time you have to repay the loan and along with interest rate determine your loan’s amortization schedule. Amortization is a fancy way of deciding how much of the payment goes to interest and how much repays the loan balance.

Another way to lower your payment amount during the early years of the loan is by choosing an adjustable rate mortgage. These loans come with a fixed introductory period that is often lower than current interest rates. After the introductory expires the lender will start adjusting your rate and payment amount based on current rate. This could result in a sharp increase in your mortgage payment. 

If you’re unhappy with the interest rates that lenders are offering you there is another advantage to FHA home loans you might not be familiar with. Streamline refinancing allows you to take advantage of lower interest rates when they go down or as your credit improves. Streamline refining significantly reduces the paperwork, costs, and time associated with refinancing an FHA home loan. 

As you rebuild your credit history by making all your payments on time you might find your ability to refinance will lower your payment and make your budget more manageable. You might be surprised to discover after paying on an FHA home loan for two or three years your credit has improved enough to get approved for a conventional home loan without the need to pay for FHA mortgage insurance.

How to Build Equity with Your FHA Loan

If your goal is to build equity in your FHA home loan as quickly as possible you have the option of choosing a 15 year term length. This will result in a much higher payment amount than choosing a 30 year term length; however more of your payment will be applied to the loan balance, building equity in your home at a faster rate. Interest rates on 15 year home loans are generally lower than 30 year term lengths; however, the shorter amortization schedule results in a high payment amount. Once you factor in mortgage insurance premiums it is important to ensure your budget will comfortable support the higher payment. 

You will have the option of a streamline refinance if you find that the payment on a 15 year term length is too much for your budget to handle. As with any mortgage loan it is critically important to avoid late making any late payments. If you start paying your mortgage late it will become increasing more difficult to maintain an acceptable credit score and refinance the loan.

Are you ready to start your application for an FHA home loan? Contact one of our dedicated loan specialists today and we’ll help you find the right home loan for achieving your short and long term financial goals.

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