Buying a house for the first time is like playing a video game with various levels and boss battles. An FHA loan is the key item that allows you to win in this game. What is the difference between this and conventional loans? In most cases, it is lower down payments and less stringent credit requirements. Here are steps that will help you reach the goal.
The credit score is a major factor that will affect your chances to obtain the loan. Normally, you need to have at least 580 points in order to apply for a loan with a 3.5% down payment. If the score lies between 500 and 579, then you can obtain a loan only at 10% down payment rate. Checking your Experian report in advance is very helpful in order to avoid any unpleasant surprise.
Consistency is the main thing that the FHA will be interested in. You should prove your lender that you were employed on a steady basis for at least two years. Changing jobs is okay, but lenders would like to see that you will be able to repay the monthly mortgage payments on time.
First-time borrowers should be aware of the fact that the debt-to-income ratio is stricter in the case of home purchase. Normally, you have to spend 43 to 50 percent of your income on the debts and the monthly mortgage payment. It not only refers to your debts but also credit cards, student and car loans.
In order to become a homeowner, you have to live in your house. Thus, it is quite obvious that an FHA loan is designed specifically for first-time buyers. Your loan contract will specify that your home should become your main residence within the first 60 days since you purchased it. It means that you cannot buy the second home using an FHA loan.
Your house has to pass the examination conducted by an FHA-licensed appraiser. This person will check your house in order to find out if there are any risks for your health. In this way, you will save yourself from buying a house that requires additional expenses for repairs in the near future.
The mortgage insurance premium, or MIP, will be required throughout the whole loan repayment period. It will increase your monthly payments, but you will not be able to get a low down payment without it. This insurance protects lenders issuing such loans from risks.
Collecting all your documents is the last stage of your way towards owning your house. Gathering all necessary papers, like pay stubs, W-2s and bank statements even before talking to a loan officer is very helpful.