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If you’re hoping to buy your first home in the near future, you’re likely wondering about the different types of mortgages that you may qualify for. Since the 1930s, the Federal Housing Administration (FHA) has been insuring home loans for first-time homeowners across America.
This program helps people achieve homeownership who typically wouldn’t be able to afford the down payment or pass the credit score requirements to secure a traditional mortgage.
In today’s post, we’re going to answer some frequently asked questions about FHA loans to help you decide if this is the best option for your first home.
Does the FHA issue loans?
Although they’re called “FHA loans,” mortgages are not actually issued by the FHA. Rather, they’re issued by mortgage lenders across the country and insured by the FHA.
Will I have to make a down payment?
With an FHA loan, your down payment can be as low as 3.5%, significantly lower than traditional loans at 20% down payment. However, you will be required to pay private mortgage insurance (PMI) in addition to your monthly mortgage payments until you have paid off 20% of the home. So, the best case scenario would be to save as much as possible for a down payment to reduce the amount of mortgage insurance you have to pay.
What are the benefits of an FHA loan?
The three main reasons to secure an FHA loan are:
You can qualify with a low credit score
You can make a smaller down payment than traditional mortgages
Your closer costs will be less expensive
Where do I apply for an FHA loan?
You can apply for an FHA loan through a mortgage lender. You can also work with a mortgage broker to help choose a lender.
Is an FHA loan the only loan option for low down payments?
There are multiple loan programs offered at the state and federal level to help individuals secure a mortgage with a lower down payment. They can be provided by the Department of Veterans Affairs, the USDA, or state-sponsored programs. Lenders also often sponsor their own programs to attract potential borrowers. However, always make sure you compare these programs to make sure you’re making the best long-term financial decision.
Do all FHA loans offer the same interest rates and costs?
No. Since the loans are only insured by the FHA, it’s up to the lender to determine your interest rate and fees. So, it’s a good idea to shop around for the best lender.
How high does my credit score have to be to qualify for an FHA loan?
You can secure a mortgage with a down payment as low as 3.5% with a credit score of 580 or higher. However, if you can afford to make a larger down payment, you can secure an FHA loan with a credit score as low as 500.
If your score is in the 500-600 range, it’s typically a better idea to spend a few months building credit before applying for a home loan.
What information will I need to apply?
You’ll need to gather all of the same information that you would for a typical mortgage. This includes W2s from your employer(s), two years of submitted tax forms, your current and former addresses from the past two years, and your gross monthly salary.
I’ve owned a house before, can I still qualify for FHA loans?
Even if you’re not a first-time homebuyer you can still qualify for an FHA loan. However, you cannot qualify if you’ve had a foreclosure within the last three years or have filed for bankruptcy within the last two years.
When you're considering buying real estate as an investment, it's a good idea to weigh the pros and cons. That's especially important with "subject-to" real estate, because there can be risks and rewards with this type of property that are different from traditional purchases. Here's what you should be considering, before you decide on this investment strategy.
The Pros of "Subject-To" Real Estate
On the "pro" side of buying "subject-to" real estate is the way you can acquire multiple properties for your portfolio. Additional benefits include:
The Cons of "Subject-To" Real Estate
With any real estate transaction or investment of any kind, there are cons that come along with the pros. When you weigh them carefully, here's what you should be thinking about:
Why Choose This Type of Real Estate Investment?
If you don't have the money or credit to buy investment properties, buying "subject-to" can be a good choice if you understand and mitigate the risks. You may also want to choose this option if you're trying to acquire a lot of properties quickly, and you want to save money over traditional purchasing options. For people who buy "subject-to", there can be big opportunities to buy quality properties they might not be able to afford under typical circumstances.
But it's very important that you're aware of the risks and legalities. Getting an attorney to help you with the first few properties, and to collect and make the mortgage payments on all the properties you buy, can be one of the ways you can make this type of transaction safer and better for you and the seller.
Filling out a mortgage application may prove to be a long, exhausting process. Fortunately, we're here to help you streamline the mortgage application process so you can move one step closer to acquiring your dream house.
Now, let's take a look at three tips to help you approach the mortgage application process with confidence.
1. Be Thorough
A mortgage application likely requests a lot of information about you, your finances and your employment history. However, it is important to answer each mortgage application question to the best of your ability. Because if you fail to do so, you risk delays in getting approved for a mortgage. Or, perhaps even worse, a lender may decline your mortgage application.
In addition, be honest in all of your mortgage application responses. This will ensure that if your mortgage application is approved, you will receive a mortgage that corresponds to your finances.
2. Ask Questions
There is no need to leave anything to chance as you complete a mortgage application. Thus, if you're uncertain about how to respond to various mortgage application questions, reach out to a lender for assistance.
Remember, there is no such thing as a "bad" question, especially when it comes to filling out a mortgage application. Lenders employ friendly, knowledgeable mortgage specialists who are happy to assist you in any way possible. Work with these mortgage specialists, and you can get the help you need to finalize your mortgage application.
3. Get Multiple Quotes
It may seem like a good idea to complete a single mortgage application to request home financing from a single lender. Yet doing so may be problematic, particularly for those who prioritize affordability.
Ultimately, meeting with multiple lenders and getting several mortgage quotes is ideal. If you shop around for a mortgage, you may be eligible for a low interest rate that helps you save money when you complete a home purchase.
Once you finish a mortgage application, it may be only a matter of time before you find out if you have received approval. Then, if you receive a "Yes" from a lender, you can accelerate the homebuying journey.
Of course, for those who plan to buy a home soon, it may be beneficial to employ a real estate agent. This housing market professional can put you in touch with the top lenders in your area, as well as help you complete a home search in no time at all.
A real estate agent typically learns about a homebuyer's goals and crafts a strategy to help this buyer accomplish his or her aspirations. Furthermore, a real estate agent provides recommendations and tips to help a homebuyer make informed decisions throughout the property buying journey. And if a homebuyer ever has concerns or questions, a real estate agent is available to respond to them.
Ready to complete a mortgage application? Use the aforementioned tips, and you can finalize a mortgage application, obtain home financing and make your homeownership dream come true.
If you’re a first time homebuyer and want to start weighing your mortgage options, you’ll have much to learn. With so much at stake, you’ll want to make sure you choose the best mortgage for you now, and one that will still suit your needs years into the future.
Sometimes, first time buyers are hesitant to ask questions they may consider too basic because they don’t want to seem inexperienced to lenders, agents, or anyone else they’ll be in contact with throughout the home buying process.
So, in this article, we’ve compiled a list of commonly asked mortgage questions that first time buyers might want to ask before heading into the process of acquiring a home loan.
What is the first step to getting a mortgage?
This question may seem straightforward, however the first step can vary depending on your financial situation. For those who already have saved up for a down payment and built a solid credit score, the first step is probably contacting lenders and getting preapproved or prequalified.
However, if you aren’t sure about your credit score and haven’t saved up for a down payment (ideally, 20% of what you hope to spend on the house), then you should address those matters first.
To find a lender, you can do a simple Google search for the mortgage lenders in your area, or you can ask around to friends and family to find out their experience with their own mortgage lenders.
What does it mean to be pre-qualified and pre-approved?
If you think of the mortgage process in three steps, the first step would be getting pre-qualified. This means you’ve given the lender enough basic information for them to decide which type of mortgage you’re eligible to receive.
Pre-approval includes collecting and verifying further details. At this step, you’ll complete a mortgage application and the lender will run a credit check. Once you’re pre-approved, your file can be moved to the underwriting phase.
What are closing costs?
“Closing costs” is an umbrella term that covers all of the various fees and expenses related to buying or selling a home. As a buyer, you are responsible for paying numerous closing costs. These can include, but are not limited to, underwriting fees, title searches, title insurance, origination fees, taxes, appraisal fees, surveys, and more.
That sounds like a lot to keep track of, however your lender will be able to give you an accurate estimate of the total closing costs when you apply for your loan. In fact, lenders are required to give you a list of these costs within three days of your loan application in the form of a “good faith estimate” of the closing costs.
What will my interest rate be?
The answer to this question is dependent upon numerous factors. The value of the home, your credit score, the amount you put down (down payment), the type of mortgage you have, and whether or not you’re paying private mortgage insurance all factor into the interest rate you’ll receive. Interest rates also will vary slightly between lenders.
You can receive a fixed-rate mortgage that does not fluctuate throughout the repayment term. However, you also typically have the option to refinance to acquire a lower interest rate, however refinancing comes with its own costs.
The process of applying for a mortgage is tedious and time-consuming; it requires you to answer personal questions about your finances. To ascertain your credibility for a mortgage, lenders structured the application process in such a way that allows them to get as much information about borrowers either directly or indirectly.
Before you decide to apply for a mortgage; it's best you familiarize yourself with some of the possible questions the lender would ask about your finances. Because it involves a considerable amount of money, you should be prepared to answer questions about disparities in your income, why you defaulted in making any accrued payments and questions about your credit history.
Below are some of the possible questions your lender would ask relating to your finances.
How long have you earned your present income?
Lenders want to ascertain if you have earned your present pay for over two years. If you just got promoted or got a salary raise recently, this is good. However, what most lenders are looking out for is a consistent income amount for the last year. If they are not sure of your income, they would take a look at your W-2s for previous years and your pay stub for the present year. Before you go ahead to make an offer for a house, ensure it's an amount your current income will support.
How often you get paid?
A lender wants to ascertain how much income you earn, how your pay is derived, and the steadiness of your salary or irregularity of income. If you receive a steady means of income, your annual salary would determine how much mortgage you get – if your income varies, you might be required to provide details.
The disparities in your income
If your income keeps changing each year either positively or negatively, come prepared to explain the reason behind the fluctuation. If your revenue decreased from the previous year, there is every possibility the underwriter would select the worst period in the last two years to determine how much you get on a mortgage. However, if your income increased in the previous year, the underwriter would take the average of the last two years to determine your mortgage value. If your income rises yearly either due to promotion or a new position, get someone from your human resource department to write a letter to that effect.
If you are new at your job
Being new at a job doesn't affect your application for getting a mortgage – as long as you are receiving either a salary or a full-time hourly rate. Some lenders even grant loans to individuals who haven't gotten their first paycheck if they have a fully executed employment contract.
If you earn commissions
If you are a salesperson who earns a commission, you would need to provide two full years of tax returns to determine non-reimbursed business expenses you wrote off.
Before applying for a mortgage, ensure you take a second look at all your finances and identified anything that could act as a deterrent so that your application has the best chance of being approved.