FHA Loans for First Time Home Buyers



Posted: Tuesday, April 19, 2011

by Alexandra Polito

When purchasing a home for the first time, new home owners need a way to finance this large and life-changing purchase.  Because this may be the first time they are buying a home, first time home owners may not have enough savings in the bank and may be facing financial hardships for such a purchase.  FHA (Federal Housing Administration) loans allow first time home buyers a means to finance payment for their new home.  FHA loans are open to anyone who may need one, but generally are directed at those first time home buyers in order to assist them in purchasing a home while they may have limited savings.

FHA loans tend to be more popular over conventional loans for two main reasons.  First, an FHA loan requires the least amount for down payment, at 3.5%, when compared to other loan types.  Since an FHA loan already targets those who are short on savings for their first home, having a loan which requires the least amount to start is another benefit for first time home buyers.  Second, the mortgage insurance is traditionally lower than that of a conventional loan.  The interest rate of FHA loans typically is a quarter-percent less than that of conventional loans.  Lower interest rates benefit the home buyer in that it allows them to save more of their money for other needs.

People who are interested in FHA loans also must qualify based on certain criteria.  In order to qualify, FHA loans require a credit score of at least 640.  This differs from conventional loans in that conventional loans require a credit score of only 620.  Also, interested parties must have four to six months reserved in the bank in the amount of four to six months of the mortgage.  This ensures the lender that the interested party is capable of making the first few months’ mortgage payments.  Finally, people interested in FHA loans must have a ratio of debt to income less than 45%.  This ensures that the party has a flow of income greater than the debt payments they may have to make, allowing the income to be put towards monthly mortgage payments.

After you have had a mortgage between a minimum of six months to one year and you have shown to make consistent payments, you may be able to participate in an FHA streamline.  An FHA streamline is when the company is able to refinance your mortgage rate at no extra cost.  For those who make their payments accordingly and timely and who qualify for an FHA streamline, an FHA streamline will make it easier on homeowners and help them by lowering their monthly mortgage payments and interest rates.

For those first time home buyers, purchasing a new home can seem like a daunting and stressful event.  However, with an FHA loan, purchasing that first home is made a little bit easier not only on yourself but on your financials as well. If you have further questions about FHA loans or if you would like to see if you qualify, contact a mortgage expert.
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