FHA – First Time Buyer Mortgage
Qualifying for an FHA loan is easier than qualifying for most other mortgages. There are four main requirements:
- Be employedfor a minimum of two years
- Be able to make a down payment of 3.5% (may be a gift from a relative)
- Have a 580 credit score
- Have no federal liens or defaults on federal loans (such as student loans)
Applicants with less than perfect credit will not be automatically turned away. As long as credit issues can be explained and that explanation is reasonable, the FHA will still consider the loan. Those who have filed for bankruptcy are eligible for an FHA loan after two years unless they have an extenuating circumstance which led to a loss of income of 20% or more. Late payments from the past will be overlooked if the applicant can show that they have recently kept current on their bills.
Unlike many lenders, the FHA does not have a strict debt-to-income ratio. Many traditional lenders turn down first time buyers because they have a large amount of debt—credit cards, student loans, and car loans often add up to more than a lender will allow. The FHA actually allows applicants to have as much as a 55 percent ratio. As long as the applicant believes they can make the mortgage payment, the FHA is willing to overload significant debt. This is especially true if the applicant can show that either their income will be increasing soon or that they will be paying off a loan or credit card in the near future.
One reason many first-time home buyers seek out an FHA loan is because these loans have low upfront costs. The down payment is only 3.5%, which is much less than normal—many lenders and programs require as much as 20 percent. Closing costs are kept low, and the seller is allowed to pay as much as six percent of these costs