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1st Time Home Buyers Select FHA Loans

May 6th, 2013

Since their inception in 1934, the Federal Housing Administration has been a favorite for first time home buyers seeking financing. People are attracted to FHA because they are considered safe and affordable with only a 3.5% down-payment required. “In fact, in the past year a big majority of FHA insured purchase loans more than 75% have gone to 1st time house buyers.”  The fact is that many new buyers are still attracted to the bad credit FHA mortgage.

The main focus of the FHA mortgage program is straight-forward: Qualified borrowers can buy a home with just 3.5% down. That means for a $150,000 property a buyer needs just $5,250 in cash plus closing costs. It is worth pointing out that the FHA is not a lender.

Down Payment Requirements: First-time FHA borrowers are generally required to put down just 3.5% of the sales price but there are exceptions: if you have a credit score below 580 then the program requires 10 % down. This is still amazing though that FHA still approves mortgages with bad credit on fico scores as low as 500. Also, HUD has proposed that if you borrow more than $625,500 then at least a 5% down-payment will be required. As long as one of the units is owner-occupied, FHA loan programs can be considered. This means first-time owners can also become first-time investors with just a 3.5% down-payment if they meet FHA guidelines.”

Gift Funds Allowed: FHA borrowers may need less cash up front if they can obtain a gift from family, friends, or other sources. “Gifts can be equal to some or all of the down payment, in fact gifts that exceed the down-payment are allowed,” said Brousseau. “The extra money counts toward reserves.”

Credit Score Requirements: In recent months the typical FHA borrower has had a 696 credit score, however the FHA also insures loans for borrowers with lower credit scores. “The FHA has recently moved toward tighter credit standards,” said Brousseau. “As of April 1st, when the debt-to-income ratio exceeds 43% and the borrower has a credit score of 620 or less the loan application must be manually reviewed. Manual underwriting can be useful because it allows FHA home loans lenders to consider compensating factors when looking at a loan.”  Read the complete WSJ article online.


1st Time Home Buyers, Published Loan Articles

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