6 Ways FHA Home Loans Help 1st Time Home Buyers in 2018

By Joe Silver

Renters who are in the market to buy their first home will probably want to think about a loan that is insured by the Federal Housing Administration. These FHA home loans are attractive to first time home buyers for many reasons that we will detail below. They are especially attractive for first time buyers who may have credit trouble or a small down payment.

Here are 6 ways that FHA house loans could help you in 2018:

Increased Loan Limits on FHA Home Mortgages

Right before Thanksgiving 2017, FHA changed the conforming loan limits for this year. The result is that the loan limits have been increased in most counties.

FHA will insure loans up to the maximum loan limit for the county where the proper is situated. For example, in a part of northern California, the maximum limit for 2017 was $554,000. This was increased to $595,000 in 2018. Many new home buyer prospects are excited because this is the first time because Congress agreed to raise 2018 FHA loan limits in many areas across the country.

This is a very important change for people who are looking to buy a nice home in many parts of the US. In California, homes generally are appreciating quickly, and if the limit is not high enough, it can prevent many people from being able to buy a home.

FHA increased the limits in most counties of the US, which indicates that the economy is growing. This means that more people will probably be buying homes because of economic growth.

Debt to Income Ratios Up to 55%

When you get a mortgage, the mortgage lender looks at your debt to income ratios. The lender wants to ensure that you do not have too much debt compared to your income; in that case, you may not be able to pay your mortgage.

FHA home loan requirements allow in some cases for your debt to income ratio to be as high as 55%. So, this makes the mortgage an attractive option for many people who have a lot of debt.

Credit Scores as Low as 580

If you have bad credit, you are not necessarily locked out of buying a home. The FHA does not have a minimum credit requirement to back a loan. What happens is that individual lenders set their own standards. Some lenders will allow you to have a score as low as 580 to buy a home up to $424,100.

Generally, you will want to have a score of at least 640 to have the maximum number of lenders to choose from. But you can definitely get a loan if you have a score in the low 600s, if you have the income to pay the mortgage.

Low Interest Rates

Even if you have average or bad credit, you will find that 30-year FHA loan rates are very low. This is because FHA is backing the loan. If you default, FHA will pay off the lender for most of the loan balance. Therefore, lenders are willing to extend low interest rate offers to people with credit problems.

Because you can get a loan with a low interest rate, you will probably find that you can save at least a few hundred dollars per month over paying rent.

FHA Applications

Low Down Payment Options

A major reason that FHA first time home buyer loans are so attractive for first time buyers is that the down payment requirements are so low. In many cases, you can buy a home with only 3.5% down.

For a $200,000 property, this is only $7500. While you will need to pay closing costs, you can have the seller pay a portion of them if they agree to do so.

A low-down payment as low as 3.5% puts home ownership in the reach of far more 1st-time buyers. Because first time buyers by definition do not have any equity in a current property, coughing up a lot of money for a down payment can be a huge challenge.

FHA home loans allow first time buyers to put down less money. You will need to pay mortgage insurance with an FHA first time home loan; that covers the risk if you were to default on the loan.

But after you have at least 10% equity in the property, you can refinance out of the FHA home loan into a conventional loan and lose your monthly mortgage payment. Consider the pros and cons of the down-payment requirements before applying for a FHA loan.

Foreclosures and Chapter 7s OK

If you have had a foreclosure or chapter 7 bankruptcy, you do not have to wait seven years to buy a home again. This is a myth that keeps being repeated.

For a foreclosure, you need to wait just three years to get an FHA loan. For a chapter 7, it is only two years.

So, if you have had financial problems in your recent past, this will not be a major obstacle to home ownership with FHA.

You will just need to show FHA that you are on a firm financial footing again. This means that you have stable income and are making regular payments on your debt obligations. Ask about today's FHA loan requirements.

The Bottom Line on Home Financing with FHA

The FHA home loan is a tremendous option for the first-time home owner. With very flexible credit and underwriting terms, along with very low-down payments, millions more families are able to qualify for a loan today.


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