June 8, 2015
If you are in the planning stages of your home buying journey, there are some important milestones you should plan for–things that are crucial to think about before you start filling out your home loan application.
One milestone is deciding how much home you can afford to buy. This seems like an obvious move for many reasons, but the amount of your down payment is one factor you shouldn’t overlook when using a home loan calculator or other tools to figure out how much you can spend.
When you add up the numbers and arrive at a target home loan amount that’s appropriate to your income level and ability to afford (based on both the amount of the projected mortgage payments AND that amount added in with your current financial obligations), don’t forget to calculate the minimum FHA loan down payment–how much is 3.5% of that target loan amount?
It’s important to budget for that amount, but even more important to determine if you are eligible for maximum FHA financing. Borrowers with marginal credit scores may be required to make a larger down payment. 3.5% may not be the minimum if your credit is below the lender’s standards, or the FHA minimum FICO score standard of 580 and above.
Don’t forget that the minimum down payment is separate from your closing costs, appraisal fees and other expenses. Your FHA home loan down payment is required above and beyond those loan-related expenses.
With that in mind, pulling your credit reports and FICO scores from the three major credit reporting agencies is a milestone you’ll want to reach as early as possible in the FHA loan preparation stages. If you know your FICO scores make you eligible for maximum FHA loan financing, you can proceed to the loan calculation stage with confidence.
If you find your FICO scores lacking, you may wish to get a referral to an FHA/HUD approved housing counselor who can help you with pre-purchase issues such as your credit and how to save and budget for the new loan. Contact the FHA directly at 1-800 CALL FHA to get your referral to a HUD approved housing counselor in your local area.
This kind of preparation can make all the difference when it’s time to finally apply for an FHA home loan. It’s never a good idea to apply without knowing your FICO scores, what your credit report says, and whether your credit history may affect your home loan eligibility. Check before you apply, you’ll be glad you did.
Do you have questions about FHA home loans? Ask us in the comments section.
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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