More and more, new home buyers are taking advantage of the FHA-insured home loan options. These loans are insured by the Federal Housing Administration, and have some very specific benefits for home buyers.
The principle behind the FHA home loan is to be able to help families of moderate to low income level become homeowners. The FHA home loan accomplishes this by reducing some of the costs involved. In addition, the loan protects the lender, and encourages the lender to make loans to potential home buyers who might not qualify using conventional underwriting metrics but that still have good credit.
FHA home loans are designed to get families into homes with very little cash out of pocket. However, there is talk in congress that this may change. One bill would change the amount that a buyer is required to put down as a down payment. Currently, FHA home loan borrowers can buy their home putting down 3.5 percent and closing costs can be wrapped into the loan. The bill would raise the cost to 5 percent, and prevent buyers from wrapping in the closing costs.
Depending on the situation, this could astronomically increase the amount that a home buyer would need to put up to get their home. It could go as high as ten percent, including five percent for the down payment and around five percent for closing costs.
The bill’s sponsor, Representative Scott Garrett of New Jersey, says that the bill is “is aimed at shielding taxpayers from the risk that the FHA portfolio presents.” Whether or not the bill would accomplish this is, of course, being fiercely debated. Home buyers and lenders alike are waiting to see what happens.
If you’re thinking about trying to get an FHA loan, there are some things you can do to get ready. First, recognize that each lender sets its own terms on loans, so it pays to do some comparison shopping.
You should also recognize that the lender will want to make a decision as to your risk. They’ll look at your credit history and your debt-to-income ratio, just like if you were applying for a traditional mortgage.
You’ll need to have the same kinds of paperwork ready, too. You’ll need employment documentation, and for an FHA loan need to have been employed for two years in the same field. You should be aware of your credit score, and know that it should be above 620 if you hope to qualify for an FHA home loan.
