FHA Loans: First Time Buyers Guide

If you are buying a home for the first time, then you would need a first time buyers guide, most especially if you are applying for an FHA loan, a quite popular choice among first time home buyers.

The FHA has really come in handy in giving out home loans, as they have been doing this since 1934 and are still beneficial for families with low to moderate incomes trying to purchase their first home.

How Do FHA Home Loans Work?

First and foremost, the FHA does not lend to borrowers, however, they do provide to lenders who can then finance certain borrowers carrying a higher risk. The applicants, however, do need to meet certain guidelines so that they can prove they can pay back the loan. If they are unable to meet the requirements put forward by the FHA, they might not be able to qualify for a loan.

The FHA normally wants proof that you can afford the loan that you are applying for, so you would definitely need a home buyers guide. Here are a few things to look at:

Debt Ratios

The FHA makes sure that they set limits of debt ratio for the borrowers so that they only take a loan amount that they can afford. This debt ratio displays a percentage of the income that you are spending on expenses such as credit cards, car loans, and mortgages. The maximum debt ratio as set by the FHA for the person to be able to qualify for getting a loan is set to 41%.

Closing Costs

The closing costs of the FHA loans are not decided by the FHA themselves. These are decided by the lenders who are FHA approved. However, certain guidelines are provided by the FHA regarding reasonable costs and allowable fees.

Mortgage Insurance

The mortgage insurance exists for the sole purpose of protecting the FHA from those borrowers who do not end up paying their mortgages. All borrowers are required to pay a down payment that is less than 20% for a mortgage insurance. If the borrowers have paid an amount that exceeds 22% of the mortgage, they will no longer be required to pay for their mortgage insurance.

Loan Limits

There is a certain limit to the maximum loan a borrower can apply for and is set by the FHA. This limit is based on the income levels of the locals in the county or state.

A first time homebuyer need not fret over the massive decision of acquiring a loan for their potential homes. All they need to do is to carry out a little research, especially with regards to the FHA guidelines regarding their loans for people who have decided on buying a home for the first time. There are certainly many options available and the FHA has carried out concrete steps to ensure that people who do not necessarily have the means to purchase a home can easily do so, provided they pay their mortgages on time.

Are you thinking of buying a home but have no idea on how to go about it or no prior knowledge about how the FHA operates? Why not give us a call? We would be more than happy to help you out and answer any of the questions that you might have.