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A Guide to FHA Mortgages for First-Time Buyers

FHA mortgages are special mortgages which are granted by FHA, the Federal Housing Administration, for the purposes of refinancing or purchasing one to four unit properties that are owner occupied. First-time home buyers are often attracted to these loans because the guidelines are less strict. FHA does not actually fund the loans, but they do guarantee that the loan will be repaid in the event the borrower defaults on the loan. When the housing and economic crisis hit, FHA home loans became even more popular with first-time homeowners who found it increasingly difficult to qualify for a home loan. Provided you do not already have a mortgage and you are able to meet the requirements for a FHA loan, it is usually not that difficult to obtain approval.

One of the most important requirements you must meet relates to credit. FHA loans are usually more lenient in regards to credit than other types of loan. Even if you have had a bankruptcy in the last two years you might still be able to qualify. If you plan to put down at least a down payment of 3.5%, you will generally need a credit score of 620.

FHA loans are also advantageous because of the low amount of money that is required for a down payment. Most first-time home buyers today simply do not have the funds to make a 20% down payment at closing. With a FHA loan you only need a minimum of 3.5% for a down payment.

These loans also offer extremely competitive interest rates. This makes it possible for borrowers to lower their monthly mortgage payments. Also, lower interest rates allow borrowers to pay less money over the course of their loan.

Overall, the application process for a FHA loan can be much easier than a traditional conventional loan. One of the things that differs between a FHA loan and a traditional loan is that a higher debt to income ratio is allowed under a FHA loan. You can still likely qualify for a FHA loan even if you have an auto loan, student loans or credit cards. Under FHA a debt to income ratio of up to 50% can sometimes be allowed, depending on the situation. The debt to income ratio is determined by adding up the total of your debt, including the new mortgage payment, and dividing it by the amount of your monthly income.

Not only do first-time home buyers benefit from FHA mortgages, but so do young families as well as individuals who have recovered from credit problems such as bankruptcies and foreclosures.

Along with the average first-time home buyer, an individual who needs to refinance their mortgage will find that FHA loans provide numerous benefits as well. Under current guidelines, you can take a cash-out refinance of up to 85% of the home's appraised value. FHA guidelines will allow up to 95% of the appraised value of the home. A streamlined refinance loan under FHA does not require an appraisal to be performed on the property. This can make it much easier and faster to obtain a refinance loan for your property.

FHA offers a variety of different types of loans, including a 30 year fixed rate loan and 15 year fixed rate loan. There are also a few adjustable rate loan programs offered through FHA as well. The 230K purchase loan can be used for renovating property that is being purchased, which can be great for homes that are considered to be fixer-uppers or for homes where the buyer simply wants to make a few improvements.

In considering a FHA loan, it is important to understand the guarantees that are available from HUD. Not only is it easier to qualify for the loan due to the guarantee provided from FHA, but you can also usually qualify with even less than perfect credit. Even if you have had credit problems in the past, such as a foreclosure or a bankruptcy, it can be easier to qualify for a FHA loan than a traditional conventional loan.

FHA mortgages also offer lower down payments and cost less overall than traditional loans. The interest rates offered by FHA loans can be competitive with other loan types. In addition, a FHA loan can assist you with keeping your home. If you should find yourself facing financial difficulties in the future, FHA offers options that can help you to stay in your home and avoid the possibility of foreclosure.

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