The toughest mortgage for many buyers is often their first, and this is one reason why several programs exist that are designed to help first-time homebuyers get a great mortgage for them. One such program is the FHA loan program, which comes with several qualification areas that are less stringent than standard mortgage situations.
At Primary Residential Mortgage in Fort Myers, we have a complete range of FHA loan options available to you. What are some of the general basics of these loans, plus the requirements you need to ensure you have in place?
FHA stands for Federal Housing Administration, which insures all FHA loans and allows the program to be so beneficial. Because of the backing of this organization, FHA loans are able to be offered with low credit thresholds and low down payment requirements – two factors that can often be tough for first-time buyers.
FHA loans can be made available in both fixed-rate and adjustable-rate formats. This means that buyers in a variety of situations may find them to be suitable options. Our next sections will go over the requirements generally needed for FHA loan qualification.
Debt-to-income ratio, a basic assessment of your overall debt picture, is a common factor in several mortgage and credit areas. It requires simply taking your total monthly debt amount, then dividing by your monthly income. In this case, “debt” is a wide term that refers to all owed sums, including taxes, insurance and homeowner’s association dues.
In most cases, your debt-to-income ratio cannot pass above 43 percent for you to be approved for an FHA loan. There may be situations where you can use factors like a larger down payment or cash reserves to obtain an FHA loan with a ratio above this, however.
Another important factor, as always, is credit score. FHA borrowers must generally have at least one line of credit, plus a credit score of 580 or higher. Some lenders require a 600 credit score.
A big plus of the FHA loan program is down payment assistance. Those who struggle to come up with a huge lump sum at the time of purchase can often pay a down payment as low as 3.5 percent, much lower than the standard 10 to 20 percent in conventional mortgage situations. In addition, gift funds are applicable for the entire down payment.
The flip side of the lower down payment amount is that borrowers will be required to carry mortgage insurance if they pay under 20 percent down. In most cases, this will be paid up front as part of closing costs, plus folded into monthly mortgage payments. Also note that this insurance will count toward your debt-to-income ratio in the future.
For more on FHA loans, or to learn about any of our mortgage loan programs, speak to the staff at Primary Residential Mortgage in Fort Myers today.