April 13, 2021
Do you want to purchase your first home? Borrowers looking for a starter home often turn to the FHA loan program because of its low 3.5% down payment requirement for borrowers with qualifying FICO scores.
And thanks to protections for the borrower such as no penalty for early payoff of the loan and the ability to refinance the FHA mortgage into a new FHA loan that can result in a lower mortgage rate or monthly payment when using an FHA Streamline Refinance loan.
Qualify For An FHA Mortgage
What do you need to qualify for an FHA loan? For best results, at least two years in the job market and FICO scores that are in the 600s or better. FHA loan rules say you can technically qualify for an FHA mortgage with lower credit scores, but much depends on the lender’s standards.
It is best to start preparing for your home loan as early as you can. Plan to apply for the home loan when you have 12 full months of on-time payments with no late or missed bills.
Some may struggle with this, but it’s one of the realities of loan approval. If you don’t have a record of on-time payments, how can your loan officer justify approving the mortgage?
You will also need to see your credit reports and make sure there is no old, wrong, or contestable data to deal with.
Down Payments For Your FHA Mortgage
For most FHA home loans, the lender requires a 3.5% down payment, but if your FICO scores are poor you may be required to put as much as 10% down–quite a difference from the 3.5% option.
That is why you might want to anticipate being required to pay 10% down (just in case) and save accordingly. That way, you can use the excess funds for other home loan related expenses when the lower down payment is approved. Not all borrowers can afford to do this, but if you can it is a very good idea.
Making a larger down payment can also be used by borrowers with good FICO scores as leverage to negotiate other aspects of the mortgage. A higher down payment means lower costs over the lifetime of the loan.
Down payment help might be available near you–examine programs in your local area for any down payment assistance grants; some of these might be need-based or feature income limits.
Start Managing Your Funds Now
If you are serious about buying a first home, create a budget now to see how your mortgage loan payment will affect your financial bottom line when you are approved for the mortgage.
The sooner you begin setting money aside for the home loan, the better off you will be at application time.
Talk To A Lender
Talk to a participating FHA lender about your home loan goals–including whether you want to buy a home or have one built for you with an FHA Construction Loan–and discuss your plans. Your lender can help you in the early stages of the loan with advice on which areas to prioritize based on your specific goals and needs.
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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