How To Get A Va Home Loan

What First-Time Homeowners Need to Know about FHA Home Loans

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Owning a home is a dream come true for many Americans, and a Federal Housing Administration (FHA) loan can be a great tool for buying one. However, while FHA loans are some of the best available for most potential homeowners, they do come with a host of rules and regulations that can make navigating the process of getting one difficult.

If you're thinking of buying a home, you should understand how an FHA loan can help you and what you need to qualify for one. Doing so will ensure that you move into your new home secure in the knowledge that you made an informed decision.

What Is an FHA Home Loan?

Despite the name, FHA loans aren't directly made by the FHA. Instead, the FHA guarantees the loan for the lender, which in turn makes them willing to extend loans to low- to mid-income buyers. The program goes back to the Great Depression, when it was used to improve the housing market and strengthen the economy.

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An FHA loan also comes with several government-mandated benefits. You can use an FHA loan to purchase up to 97.5 percent of the sale price of a house, and some allow you to borrow more than the purchase price to cover any needed repairs. You can qualify if you've had a bankruptcy two or more years ago or a foreclosure three or more years ago.

On top of that, you can use a cosigner to apply for the loan, the downpayment can be a gift and closing costs can be covered by the seller or lender. In short, FHA loans have numerous features designed to help people who would otherwise struggle to qualify or pay back a loan.

What Do You Need to Apply?

You can apply for an FHA loan from any FHA-approved lender. However, you should aim for. a 12-month period beforehand where you meet all of your financial requirements, such as rent or other mortgages, on time. Doing so will earn you a better rate. You also want a FICO score — a particular brand of credit score — of 580 or higher, although some lenders may have higher requirements. Finally, most FHA loans require mortgage insurance, so you should factor the expense into your monthly payments and be prepared for an up-front mortgage insurance premium (UFMIP).

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The loan specialist at the FHA-approved lender you choose to work with will also need various kinds of documentation about your financial situation and other personal information. This includes a list of all previous addresses over the past two years, social security numbers for all borrowers, employment information for the past two years, your most recent pay stub, three months of banking statements and federal W2 forms and tax returns for the past two years. If you're self-employed, you need an income statement and business balance sheet, while veterans need a DD-214 form. If you own other property, you'll need documentation for that as well. Finally, you must pay for a credit report and FHA property appraisal.

You do not need to be a U.S. citizen to apply for an FHA loan, although you do need to be able to prove that you are a legal resident.

What Homes Can You Buy With an FHA Loan?

You can use an FHA loan to buy or refinance not just a single home, but also a duplex, triplex, or four-unit property. You can buy a mixed-use property — one used both as a residence and for commercial purposes — as long you use at least 51 percent of the space as a residence.

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FHA loans can also be used to cover costs for up to $50,000 in repairs as well, making them a good choice for buying older houses, and even for new builds if you get a FHA One-Time Close construction loan. You can also use one to buy a condo, although you should be aware that such properties often have owner's associations with specific rules and regulations.