What to Know About Getting an FHA for Your First Home Loan

First Home Loan

For most first-time home buyers, an FHA loan will be the right mortgage product.

These loans are specifically designed with favorable terms that make it easy for people who might not otherwise afford a private mortgage to purchase homes.

Here are four things you should know about FHA’s first home loan and its workings.

Your Down Payment Requirement Will Be Lower

Unlike traditional mortgages with higher down payment requirements, FHA loans only ask for a small amount down.

As long as your credit score is above 580, you can get an FHA loan for as little as 3.5 percent down.

For borrowers with credit scores below 580, the requirement is 10 percent.

If possible, though, it’s still a good idea to save up a larger down payment to keep your monthly mortgage payments lower.

You Can Buy a Multi-unit Property on an FHA Loan

Contrary to popular belief, it is possible to buy a multi-unit property through the FHA loan program.

Buildings of up to four units are eligible for FHA loans. To qualify, though, you will have to occupy one of these units as your primary personal residence.

You’ll Need Two Established Lines of Credit

To qualify for an FHA loan, you’ll need to have at least two lines of credit on your credit history.

If you have a credit card and a car loan like most consumers, you already meet this requirement.

If not, though, you may have to open a second line of credit to demonstrate your ability to make your payments on time each month.

Your Debt to Income Ratio Can’t Exceed 50 Percent

Almost all home loans impose some debt to income ratio cap. For FHA loans, that cap is at 50 percent.

Even though there isn’t a minimum salary requirement, you will have to carry less than half of your current salary in other existing debts before you can get an FHA loan.

This provision is intended to prevent people from borrowing more than they can reasonably repay across all of their credit lines.

If your debt to income ratio is currently higher than 50 percent, you should focus on repaying other debts before taking out a home loan.

Qualifying for an FHA loan is often the easiest way for first-time homebuyers to get the financing they need.

As long as you can meet a few basic requirements, you’ll be able to access the favorable terms offered under the FHA loan program.

Tags: first home loan, Getting an FHA Loan

Category: Housing