Hopeful first-time homebuyers frequently encounter an array of mortgage choices and qualification conditions. Credit qualifying criteria might prevent some potential intruders from acquiring a home. However, the government’s Federal Housing Administration (FHA) insures home loans from approved lenders that can greatly aid first-time buyers. FHA-insured mortgages feature low down payments and easier credit qualification criteria through lenders willing to utilize first-time buyers.
Credit Qualification Standards
Since FHA backs the mortgage loans lenders expand to homebuyers, lenders can relax credit qualification criteria. For prospective buyers that are first-time, lower credit scores may keep them from getting conventional mortgages. However, FHA-insured mortgage qualification criteria enable credit scores as low as 530, though lenders typically prefer at least 600.
Down Payment Benefits
FHA allows homebuyers with credit scores of 580 to put down as small as 3.5 percent. For first-time homebuyers with credit scores below 580, FHA requires 10 percent down payments, and no gifts or vendor deposits. However, those with credit scores at 580 or above can obtain their down payments as gifts from family members. Additionally, FHA sellers can give buyers with 580 and above credit scores around 6 percent in vendor deposits.
Mortgage Insurance Premiums
First-time homebuyers putting less than 20 percent on conventional mortgages usually have to buy private mortgage insurance (PMI). However, FHA-insured mortgages don’t feature PMI requirements. Rather, FHA homebuyers pay a tiny annual mortgage insurance premium (MIP). Furthermore, the upfront initial MIP funding payment can be financed into an FHA-insured mortgage. Typically, FHA mortgage loan can be canceled after it’s 60 months old and the home’s loan-to-value ratio has declined to 78 percent of their original loan amount.
FHA-Insured Mortgages
The most common FHA-insured mortgage is the 203(b) loan for 1 to 4-unit owner-occupied residences. FHA also provides 203(k) insured mortgages for homebuyers wanting to buy “fixer-upper” 1 to 4-unit owner-occupied homes in need of rehabilitation. Utilizing 203(k) FHA-insured mortgages, qualified citizens can finance their home purchases as well as up to $30,000 in rehabilitation costs. Homebuyer credit qualifying criteria are the same for FHA 203(b) since they’re 203(k) insured mortgages.