January 14, 2019
What should borrowers, especially first-time home buyers, know about buying a home with an FHA mortgage?
First time home buyers and second-time home buyers alike have options for an FHA mortgage. The program is not restricted to those who have never owned a home before.
FHA loans are also more forgiving in the credit department-FICO score requirements set by the FHA are lower than you may expect. But lower FICO scores may still feel like a big liability for the first time home buyer.
You should know that your repayment history is an important factor. If you make 12 months of on-time payments on all financial obligations, you may find the lender more willing to work with a lower FICO score.
That’s because it’s easy to get a lower credit score if you have had past credit inquiries, not much experience with credit in general, etc. The low score is not always an indicator that the borrower is a bad risk for home loan approval.
When you consider your home loan options, remember that FHA loans do require the payment of a mortgage insurance premium, but so do conventional loans unless you are putting 20% down.
Conventional loans may provide for the end of private mortgage insurance once the loan has been paid down to a certain point for those who opt not to put 20% down.
But FHA mortgage loans allow the borrower to finance the FHA Up-Front Mortgage Insurance Premium (UFMIP), reducing out of pocket expenses up front.
This financing of the UFMIP is good for first time home buyers and repeat borrowers, too. If you are buying another property with an FHA mortgage (primary residences) you are allowed to finance the UFMIP in the same manners as the first time buyer.
Are you a first-time home buyer? Know that a larger down payment can be an advantage for FHA home loans, but if you don’t plan to stay in the first home for the full term of the loan, it may be good to reconsider making a larger-than-required down payment.
Paying more up front doesn’t make as much sense for borrowers on a budget when you don’t plan to keep the home for the full loan term.
Ask your loan officer about any special programs or options that might be available to a first time borrower or first time home buyer-you may find some participating lenders offer an incentive that can help you on the road to your very first home.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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