4 Things to Know About Your First FHA Loan
Sunday, June 21, 2020, 6:00 AM | Leave Comment
When you apply for a mortgage, you may not realize how much of a process it is.
The paperwork can seem never-ending. It may also be confusing for first-time buyers.
Here are four things you will want to know before heading to the loan office.
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Mortgage insurance comes with your loan
Every homeowner will need to pay what the industry calls a mortgage insurance premium. You may also hear someone call it private mortgage insurance. Unless you have a 20 percent down payment, you will need to pay this insurance every month for the life of your mortgage. This means on top of your monthly house payment, you will need to budget for this insurance.
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Credit requirements
To get the lowest interest rates, a credit score of 580 or higher is necessary to get the lowest interest rate. 500 is the rock bottom credit score acceptable for FHA loans. Each lender may require a higher specific rate. For example, a bank might ask for a 600 or 650 credit score minimum to give you a loan.
Your debt to income ratio will be something else a lender looks at for people asking for an FHA loan. Your total debt can be as high as 50 percent, but most lenders are looking for figures lower than 43 percent. There is also a specific amount of debt allowable for current housing costs that figure into that amount.
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Home selection
There are other requirements for an FHA loan. The house you want will need approval through a home inspection from the Department of Housing and Urban Development, or HUD. This is not the standard home inspection. It is important that you get a separate inspection from a company you trust. Another requirement is that you must live in the home. You can purchase a multi-family residence with these loans, but you must physically reside in one of the units to qualify for an FHA loan for these dwellings.
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Shopping around
Not all mortgage loans are equal. Nerd Wallet says lenders have their own limits and approval amounts. One company might require a higher credit score while another may ask for a higher insurance premium. To help you find the best deal, getting a mortgage pre-approval letter from each lender you are considering is best. These documents will give you a clear picture of the closing costs you will have to cover as well.
FHA loans can be confusing until you know the facts. The more information you have about the process before applying can help simplify the process. Once you get the pre-approval letters, you will have a good picture of the monetary requirements each lender expects so that you can make an informed decision.
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