Have you given up on the dream of being able to buy your own home? For many would-be first-time buyers, a place of their own feels too far out of reach. When the prices are so high, how can you even think about buying a home? However, there is hope, through an FHA loan. Here’s why FHA loans are working to help first-time buyers settle into their own homes, and how you can get an FHA loan.
What Is The FHA?
The FHA, or the Federal Housing Administration, was created during the Great Depression and is designed to help those who wouldn’t be able to afford a home conventionally. The government saw that the housing market was struggling because of the Great Depression, so they created the FHA to ensure that people would be able to buy their own homes, even if they didn’t fit the typical profile of a buyer. The FHA still backs home loans to this day.
FHA Loans 101: Buy Your First Home Even with a Lower Credit Score
If you want to apply for an FHA loan yourself, you’ll need to meet some criteria to ensure you’re in the grouping that the FHA can help. The requirements include:
- A reasonable debt to income ratio. The best ratio is around 31 – 43%, but even if it’s closer to 50/50, some lenders may still approve you.
- Enough income to cover mortgage payments. Typically, you won’t need to meet a minimum income, but you must be able to show that you can afford repayments every month.
- While you can get an FHA loan on a lower credit score than you’d need for an average loan, you will still need some credit history to qualify. Additionally, the bigger your down payment, the lower your credit score can be. In some cases, you can pay 10% and have a credit score of between 500 and 580. This varies between lenders, so give our professional team here at NHL Lending a call to see what your options are.
The Benefits of An FHA Loan
There are a lot of reasons why first-time buyers should consider an FHA loan to help them get on the property ladder. First, as you’ve seen, you can have a lower than average credit score and still get a loan. Many people think that their credit score automatically denies them from getting a mortgage, but this isn’t the case at all.
Many lenders have FHA loan programs in place, that help you buy your own home even with a less than stellar credit score. Be sure to ask when you’re shopping around. They’ll be happy to show you what they have in place for buyers with your credentials.
Secondly, lenders often like to lend to those with FHA loan eligibility, too. When you take out an FHA home loan in Fort Lauderdale, that loan is backed by the FHA. If you default on the payments for the loan, the FHA steps in to ensure the lender doesn’t lose money. You’re a safe bet as far as the lender is concerned which is why they are more willing to offer good deals on your mortgage.
Limitations on Your FHA Loan
Since FHA loans are designed for those who otherwise couldn’t get loans, there are some limitations you need to be aware of. First, the amount you can borrow won’t be as much as you would be able to get with other types of loans. However, if you’re only buying a modest or ‘starter’ home, this shouldn’t be a problem. Loans for larger amounts will require better credit scores and a higher income.
Also, be aware that mortgage insurance on your loan may be higher than it would be with a different kind of loan. You’ll want to build this expense into your budget.
There are lots of reasons why you should consider an FHA loan when buying your first home such as the feasibility of getting a loan even with a lower credit score. If you thought you’d never be able to afford your own home, think again. That dream might not be as far off as you thought. Contact us at Kloze today to talk with one of our lenders who can advise you on which loan will work best for you.