April 6, 2022
Buying your first home with an FHA mortgage is a good option if you want to save money on down payment expenses up front, if you want a loan with no early payoff penalty, and you want one that allows you to purchase a brand new home, a fixer-upper, or build one from the ground up on your own lot.
What do you need to know about FHA loans as a first-time homebuyer?
Down Payments Are Low
FHA mortgages have a minimum down payment requirement of 3.5%. You are also required to pay for mortgage insurance, but the Up-Front Mortgage Insurance Premium (UFMIP) can be financed into the loan amount if you need to save money up front on the loan.
Think About Where Your Down Payment Might Come From
It’s not just the amount of the down payment you should consider. The source of the money is just as important. FHA home loans require a minimum 3.5% down payment. FHA loan rules say down payment funds must come from an approved source and not cash advances, payday loans, or other unapproved sources.
But that’s not the only thing to consider.
What if there is a downpayment assistance program in your area that could help you lower your out-of-pocket costs even more? It’s worth looking into. Explore your state government’s official site to see if there’s a first-time homebuyer program near you.
FHA Loans For A Multi-Unit House
Even a first-time home buyer can use an FHA mortgage loan to buy a home up to four living units with the same down payment percentage (3.5%) and basic qualifications.
FHA loan limits are higher for properties with more than one unit, and you are permitted to rent out the unused living units in the home if you choose to do so. Keep in mind that you must use the property as your primary residence regardless.
Get Ready To Negotiate
Many people assume we are just talking about the sale price. It’s understandable that some house hunters shy away from negotiating, but you’ll want to haggle over the price of the home AND consider further negotiations to have the seller pay up to six percent of your closing costs as an added incentive for you to purchase the home.
This negotiation typically works best in situations where the buyer has the advantage. In a more competitive housing market, the six percent negotiation might not be as welcome. But it never hurts to try.
Talk To A Lender About Getting Pre-Approved For An FHA Mortgage
It’s a good idea to talk to multiple FHA lenders to discuss your options before you settle on one to start the pre-approval process. Shopping around for a lender is important since no two financial institutions may offer the same rates, terms, and conditions.
Don’t just compare rates and down payment requirements. Also ask about early payoff penalties, discount points, and how much the lender may charge in origination fees and other costs.
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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