FHA Loans – A Popular Choice for First-Time Homebuyers
Over the last year or so, historically low mortgage rates and a trend of steadily rising home prices are leading many aspiring homeowners to put their home-buying plans on the fast track.
As a first-time homebuyer, when the real estate stars align and you think you’ve found ‘the one,’ there’s a good chance you can finance your new home with one of the most advantageous loan programs available.
One of the top choices to explore is the Federal Housing Administration’s program for first-time borrowers – the FHA loan.
What Exactly IS an FHA Loan?
FHA loans are mortgages insured by the Federal Housing Administration and they were created, in part, to help make homeownership more affordable and attainable for first-time borrowers. FHA loans generally have more lenient requirements than conventional loans, including allowing borrowers to qualify with lower credit scores, shorter credit histories, and lower down payments.
What are the 2021 Qualifications for FHA Loans?
Generally, as a first-time borrower, you can qualify for an FHA-insured loan by meeting these eligibility standards, which are updated annually:
- Down payment of as little as 3.5%
- Mortgage Insurance Premium required
- Property must be used as a primary residence
- Property must meet the FHA’s minimum property guidelines
- Borrower must have steady income and proof of employment
What’s the ‘Fine Print’ of FHA Loans?
Along with meeting the base qualifications as an FHA borrower, there is some fine print including income guidelines, loan limits, and property guidelines.
- Income Guidelines – Generally, there isn’t a minimum or maximum salary you must earn to qualify for an FHA loan, but you do need to have established credit, no delinquent debt, and be able to account for cash gifts you might use toward your down payment.
- Loan Limits – There are loan limits to abide by when using the FHA program and this varies by your location. You can look up your area’s FHA loan limits here.
- Property Requirements – The property you want to buy will have to meet FHA guidelines, too, and pass an FHA appraisal. FHA loans also can’t be used as part of a house flip and they can’t be used to purchase investment properties. Properties of up to 4 units are allowed, as long as it is owner-occupied.
- Seller Paid Closing Costs - The seller is allowed to pay closing costs up to 6% of the purchase price on behalf of the buyer, however, the borrower must still meet minimum down payment rules.
- Mortgage insurance - To help fund the obligation of the FHA to repay lenders if the loan defaults, they charge the borrower a fee. This fee is called a “mortgage insurance premium” and may be paid in two ways:
- Upfront mortgage insurance premium – This insurance premium is a percentage of your loan amount, paid in a lump sum due at closing and, and may be financed into the loan or paid in cash at closing.
- Annual mortgage insurance premium - This annual premium is a monthly mortgage insurance payment that varies depending on the amount of down payment.
The Ideal Loan to Help You Ease Your Way into Your Dream Home
While there are many guidelines and requirements tied to the FHA-insured loan program, this option has always been an ideal first-time homebuyer program to help ease you into your homeownership dreams.
Learn more about our available FHA loan programs and reach out to your loan officer to discuss whether they’re a good option for you!
We’re the bank that cares about you and we want to help you fund your dream home.