Buying a new home can be both exciting and very stressful. There are so many decisions to make and papers to sign, so getting overwhelmed is understandable. If you are a first-time homebuyer, applying for a mortgage can be confusing and expensive if you're not careful. The FHA, or Federal Housing Administration, comes in handy when it comes to buying a home for the first time if you do not have enough money to use as a down payment. It's not unusual for a first-time buyer to not have the basic 20 percent down. But with a FHA mortgage, three percent down payment is the minimum requirement, making the dream of buying a home much more feasible.
The FHA was established by the government to improve housing conditions. The FHA mortgage was established in 1934 to protect Americans from existing home standards and conditions. Before 1934, people were required to make a 50 percent down payment and they also had to have the home paid off in one to five years. Those figures are staggering, which is why the FHA was created to help people.
It is important to know that the FHA does not lend money to buyers. Instead, it insures the lender that the full amount of the mortgage will be paid off if the buyer defaults on their mortgage for some reason. Getting a FHA mortgage is a little easier if you have less than stellar credit or a bankruptcy on your record. As long as the bankruptcy was filed two years prior to applying for the FHA mortgage, the FHA is forgiving. Most FHA mortgages only require a three to five percent down payment and may not need to be secured as your own money. Borrowers also need to purchase a PMI - private mortgage insurance - which protects the lender and ensures they will be paid the full amount of the loan regardless of what happens. The PMI may not go into effect until after about 20 percent of the loan has been paid down. Closing costs are the responsibility of the buyer, but they can be factored into the mortgage if you cannot pay for that.
To get a FHA mortgage, your credit report needs to be satisfactory by showing the FHA that you are willing to pay your debts on time. You need to prove that your total monthly mortgage will be no more that 29 percent of your total monthly take-home income. Your other bills, such as car loan and credit card debt, cannot exceed 41 percent of your total income when getting a FHA mortgage loan, too.
It may seem like getting a FHA mortgage is difficult. However, the FHA just wants to make sure you are serious about this and you can afford it. Because the down payment is only three to five percent, most people are willing to do what is necessary to qualify for a FHA mortgage when their dreams of buying a home are otherwise limited.
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