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FHA Loans

Posted by Emma Parker on January 5, 2022
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Being a first time home buyer is no walk in the park. It’s daunting, looking at spending large sums of money, potentially for the first time. Whether you’re nervous about your credit, don’t have a lot of money saved, or unsure if you’re ready to buy, look into an FHA loan program.

What is an FHA Loan?

FHA loans is a program through the Federal Housing Administration and is an affordable home loan option. This program is great if you have new credit, or not a lot of it, and can’t or don’t want to put down a large down payment. This is a great option for first time home buyers because the mortgage interest rates are typically lower than conventional loans. This means that not only will you be saving money up front, you’ll also be saving over the life of your loan.

What are the loan limits for FHA loans?

Like other types of loans, FHA loans have loan maximums. This means that you can only be loaned up to a certain amount when buying a home. These maximums do change from year-to- year, state-to-state, to keep up with price inflation. As of 2022, in Rhode Island, the maximum loan amount through FHA for a single family home is $420,680.

Obviously, your lender will evaluate how much you can afford based on your income, assets, & credit. That number is your ceiling for how much you can take as a loan.

Am I eligible for an FHA loan?

The eligibility requirements are listed below:

  • 2 years of employment
  • Show steady or increasing income over last 2 years
  • Have less than 2 missed payments on your credit report
  • Haven’t declared bankruptcy in past 2 years
  • Have not been foreclosed on in past 3 years
  • Mortgage payment will be equal or less than 30% of gross income

Read more about these loan eligibility requirements at https://www.fhaloans.com/articles/rhode-island/?go=boo-button-2.

Is an FHA loan only for buyers with bad credit?

NO!

I don’t know where this idea came from that this loan program is only for buyers with horrible credit. It’s not. It’s for buyers who have new credit or those who don’t have a lot of credit.

The minimum credit score you can have to qualify is 500. BUT, because you’re more of a risk, credit-wise, you will have to put down more, 10% to be precise. If your credit score is 580+, you would qualify for the lowest down payment option of 3.5%. You cannot have no credit score, unless you’re planning on paying all cash, which is a different blog post entirely!

This program was designed to give younger buyers the ability to afford a decent home and prevent them for spending years renting. This program helps if you’re just coming out of school, or just starting out professionally and don’t have a ton of savings.

Does an FHA loan look bad to sellers?

NO!

Everyone is a first time home buyer once. A buyer using an FHA loan is just as backed as someone using a conventional loan. The only differences are the loan requirements, inspection & appraisal guidelines. While this may seem like a “stricter” option to a seller, it just means that the buyer’s team is being more thorough.

Additionally, 25% of all loans issued are FHA backed, so it only makes sense for sellers to be prepared when planning on selling their home. Sellers shouldn’t shy away from accepting an FHA-backed offer if they have done a good job at maintaining & repairing any issues that could be red flags on an inspection!

FHA loans – pros & cons

FHA loans are a great option for those of you who have not a lot of, or new, credit & who haven’t been able to save a truckload of money. With this loan program, you’re able to qualify to own a home without spending years trying to juggle renting & saving in order to buy.

While the guidelines for this loan appear stricter to sellers, it’s important to note that it’s about how the sellers perceive the buyers. Connecting with the listing agent & advocating for you on your behalf is something that your Realtor & lender should be doing.

FHA loans are increasingly more common. Rents are more and more expensive. And with housing prices increasing steadily, FHA loans are a great option to put that monthly housing expense in your pocket, instead of your landlord’s.

To see whether this type of loan fits your goals, let’s connect to determine where your starting from & where you want to end up!

-Emma

One thought on “FHA Loans

  • on February 5, 2022

    whoah this blog is wonderful i love reading your articles. Keep up the good work! You know, a lot of people are hunting around for this information, you can aid them greatly.

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