James A. Wood's Blog
If you’re hoping to buy your first home in the near future, you’re likely wondering about the different types of mortgages that you may qualify for. Since the 1930s, the Federal Housing Administration (FHA) has been insuring home loans for first-time homeowners across America.
This program helps people achieve homeownership who typically wouldn’t be able to afford the down payment or pass the credit score requirements to secure a traditional mortgage.
In today’s post, we’re going to answer some frequently asked questions about FHA loans to help you decide if this is the best option for your first home.
Does the FHA issue loans?
Although they’re called “FHA loans,” mortgages are not actually issued by the FHA. Rather, they’re issued by mortgage lenders across the country and insured by the FHA.
Will I have to make a down payment?
With an FHA loan, your down payment can be as low as 3.5%, significantly lower than traditional loans at 20% down payment. However, you will be required to pay private mortgage insurance (PMI) in addition to your monthly mortgage payments until you have paid off 20% of the home. So, the best case scenario would be to save as much as possible for a down payment to reduce the amount of mortgage insurance you have to pay.
What are the benefits of an FHA loan?
The three main reasons to secure an FHA loan are:
You can qualify with a low credit score
You can make a smaller down payment than traditional mortgages
Your closer costs will be less expensive
Where do I apply for an FHA loan?
You can apply for an FHA loan through a mortgage lender. You can also work with a mortgage broker to help choose a lender.
Is an FHA loan the only loan option for low down payments?
There are multiple loan programs offered at the state and federal level to help individuals secure a mortgage with a lower down payment. They can be provided by the Department of Veterans Affairs, the USDA, or state-sponsored programs. Lenders also often sponsor their own programs to attract potential borrowers. However, always make sure you compare these programs to make sure you’re making the best long-term financial decision.
Do all FHA loans offer the same interest rates and costs?
No. Since the loans are only insured by the FHA, it’s up to the lender to determine your interest rate and fees. So, it’s a good idea to shop around for the best lender.
How high does my credit score have to be to qualify for an FHA loan?
You can secure a mortgage with a down payment as low as 3.5% with a credit score of 580 or higher. However, if you can afford to make a larger down payment, you can secure an FHA loan with a credit score as low as 500.
If your score is in the 500-600 range, it’s typically a better idea to spend a few months building credit before applying for a home loan.
What information will I need to apply?
You’ll need to gather all of the same information that you would for a typical mortgage. This includes W2s from your employer(s), two years of submitted tax forms, your current and former addresses from the past two years, and your gross monthly salary.
I’ve owned a house before, can I still qualify for FHA loans?
Even if you’re not a first-time homebuyer you can still qualify for an FHA loan. However, you cannot qualify if you’ve had a foreclosure within the last three years or have filed for bankruptcy within the last two years.
Buying a home represents a dream come true for many individuals. However, to transform this dream into a reality, you'll likely need to qualify for a mortgage.
Finding the right mortgage may seem difficult, particularly for a first-time homebuyer. Fortunately, we're here to help you make sense of all of the mortgage options at your disposal so you can select the right option based on your budget and lifestyle.
Here's a closer look at three of the most common mortgage options for homebuyers.
With a fixed-rate mortgage, there are no cost fluctuations. This means that you'll pay the same amount each month for the duration of your mortgage, regardless of economic conditions.
For example, if you sign up for a 15- or 30-year fixed-rate mortgage, you'll wind up paying the same amount each month until your mortgage is paid in full. In some instances, you may even be able to pay off your mortgage early without penalties.
A fixed-rate mortgage often serves as a great option for those who don't want to worry about mortgage bills that may fluctuate over the years. Instead, this type of mortgage guarantees that you'll be able to pay a consistent monthly amount for the life of your loan.
An adjustable-rate mortgage represents the exact opposite of its fixed-rate counterpart. The costs associated with this type of mortgage will change over time, which means you may wind up paying a fixed interest rate for the first few years of your loan and watch this rate go up a few years later.
For instance, a 5/1 adjustable-rate mortgage means that your interest rate is locked in for the first five years of your loan. After this period, the interest rate will adjust annually. Therefore, a rising interest rate may force you to allocate additional funds to cover your mortgage costs in the future.
An adjustable-rate mortgage may prove to be a viable option if you plan to live in a home for only a short amount of time. Or, if you're a college student or young professional, an adjustable-rate mortgage may help you pay less for a home now, secure your dream job and become financially stable by the time your initial interest rate period ends.
3. VA Loans
The U.S. Department of Veterans Affairs (VA) provides loans to military service members and their families. These loans are backed by the government and enable individuals to receive complete financing for a house. Thus, with a VA loan, an individual is not required to make a down payment on a house.
If you ever have concerns or questions about mortgage loans, banks and credit unions are available to help. Also, your real estate agent may be able to offer mortgage insights and tips to ensure you can secure a mortgage quickly and effortlessly.
Learn about all of the mortgage options that are available, and by doing so, you can move one step closer to buying a home that matches your budget and lifestyle.
For many individuals, the homebuying journey often begins with getting pre-approved for a mortgage. Because if a buyer has a mortgage, he or she can enter the real estate market with a budget in hand.
Ultimately, there are many signs that now may be the perfect time to apply for a mortgage, and these include:
1. You're ready to upgrade from an apartment to a home.
If you're tired of paying monthly rent for an apartment, purchasing a house offers a viable alternative. And if you get pre-approved for a mortgage, you can move one step closer to moving from an apartment to a house.
In most instances, a home offers a significant upgrade over an apartment. Many residences are available in cities and towns nationwide that offer more space than apartments. Plus, as a homeowner, you won't have to worry about dealing with a landlord.
2. You feel good about your credit score.
If you have a strong credit score, you likely are a great candidate for a mortgage. In fact, you may be better equipped than others to get a favorable interest rate on the mortgage of your choice.
Understanding your credit score is a key part of the homebuying journey. You can request a free copy of your credit report annually from each of the three credit reporting bureaus (Equifax, Experian and TransUnion). Then, once you find out your credit score, you can determine whether you are in good shape to pursue a mortgage.
3. A buyer's market is in place.
In a buyer's market, there usually is an abundance of top-notch houses and a shortage of buyers. This means a homebuyer may be able to get a wonderful deal on a house, especially if he or she performs a comprehensive house search.
To find out whether a buyer's market is in place, you should check out the prices of recently sold houses in your area. Also, you may want to find out how long recently sold houses were listed before they sold. By reviewing this housing market data, you can differentiate a buyer's market from a seller's market and decide whether now is the right time to apply for a mortgage.
If you're interested in getting a mortgage and starting a house search, you may want to hire a real estate agent too. Because if you have a real estate agent at your side, you can receive extensive support at each stage of the property buying journey.
A real estate agent will teach you everything you need to know about pursuing a house. He or she will offer insights into the local housing market and ensure that you can conduct a successful house search. And if you ever have concerns or questions along the way, a real estate agent is ready to respond to them.
Want to launch a home search? Get pre-approved for a mortgage, and you can take the first step to acquire your ideal residence.
The U.S. Department of Agriculture (USDA) offers multiple housing assistance programs for people hoping to achieve home ownership.
In spite of being offered by the USDA, you don’t need to be a farmer or rancher of any kind to qualify for a home loan. Similarly, you don’t have to buy a home miles from civilization--many popular, thickly-settled suburbs across the country also qualify for USDA programs.
In this article, we’re going to explain the different programs offered by the USDA, how to check your eligibility, how to find out which locations qualify, and how to get started with a loan.
USDA Assistance Programs
The USDA offers two types of home loans for prospective buyers. The direct program, or Section 502 Direct Loan Program, is designed to help low-income persons to acquire safe, affordable housing. The assistance for this loan comes in the form of a subsidy that can be applied directly to the applicant’s mortgage, reducing monthly mortgage payments for a certain period of time.
Another type of home loan offered by the USDA is the Single Family Home Guarantee. Much like an FHA or first-time homeowner’s loan, this type of mortgage is insured by the government. As a result, buyers can often qualify for lower interest rates and smaller down payments from their lenders.
Guarantees may be applied towards the purchase, rebuilding, or building of a rural home as an incentive to developing rural areas. Later, we’ll talk about what is considered “rural.”
Outside of help with buying homes, the USDA also provides grants and loans for repairing and modernizing rural homes.
Who is eligible for USDA mortgage assistance?
In general, those applying for USDA assistance must meet certain criteria. Applicants must meet income eligibility, be a U.S. citizen or qualified noncitizen, and must purchase a qualifying property.
For the Direct loan program, applicants must be without safe or sanitary housing and be unable to secure housing through other means. Whereas for USDA guaranteed loans, applicants need only fall under the maximum income limit.
To find out if you’re eligible immediately, fill out an eligibility form from the USDA.
How do I know which houses qualify?
Generally speaking, homes located within large, metropolitan cities won’t qualify for USDA loans. However, suburbs just outside of some larger cities often do. For example, towns located just a half hour’s drive outside of Boston have a good chance of being eligible.
To view the map of property eligibility, simply fill out the online eligibility form.
How Do I Get Started?
If you’re seeking a direct loan, you’ll have to contact your local Rural Development office. Applications for a direct loan are accepted year-round and are awarded based on funding availability.
For people looking for a private loan guaranteed by the USDA, applicants should contact an approved lender in the area. The lender will then work with the USDA loan specialist in your state.
If you’ve been considering taking the next step toward homeownership, you’ve likely heard about FHA loans. Offered by the Federal Housing Administration (hence, “FHA”), these loans are great for a number of people hoping to purchase a home but who don’t have a large down payment saved.
There are many misconceptions about FHA loans since they’re often advertised by large, private mortgage lenders but are technically a government program. In order to clear up some of the confusion, we’ve provided answers to some frequently asked questions regarding FHA loans.
Read on to learn about FHA loans and how they might help you purchase a home.
Who issues an FHA loan?
FHA loans aren’t issued by the government. Rather, they’re issued by private lenders but insured, or “guaranteed,” by the government.
Since lenders want to make sure they’ll see a positive return from lending to you, they typically want you to have a high credit score and a large down payment (typically 20%). However, not everyone is able to meet those requirements. In this situation, the FHA is able to help you acquire a loan by giving your lender a guarantee.
Are there different types of FHA loans?
Yes. In fact, there are nine distinct types of loans guaranteed by the FHA. These include fixed rate mortgages, adjustable rate mortgages, refinance loans, reverse mortgages, VA loans, and more.
What do you need to qualify for an FHA loan?
It’s a common misconception that you need to be a first-time buyer to qualify for an FHA loan. However, if you have previously owned a home that was foreclosed on or if you’ve filed for bankruptcy, the foreclosure and bankruptcy have to be at least three years old.
You’ll also need to demonstrate a stable employment history, usually including two years of employment with the same employer.
Finally, the FHA will ask you for your current and previous addresses, the last two years tax returns, and the W-2 forms from any of your recent jobs.
What is the most I can borrow with an FHA loan?
The FHA sets mortgage limits on loans depending on the state and county you’ll be living in. For a single-family home, the limit ranges from $275,000 to $451,000. So be sure to check the limits for your state and county.
Can you refinance an FHA loan?
Refinancing a loan is a great way to receive a lower interest rate or to shorten the term of their mortgage to save in the total number of interest payments. In fact, the FHA typically only allows refinancing when it will result in lower interest payments on a loan.
What is the minimum credit score needed to qualify for an FHA loan?
While you don’t need excellent credit to qualify for a loan, the FHA will require you to have a score of at least a 580. You can check your score for free online from a number of companies, such as Mint or Credit Karma. Be aware, however, that scores vary between credit bureaus. So, it’s a good idea to check your FICO score once per year, which is the score used by mortgage lenders.