If you are thinking of buying your first home, one of the most important decisions you will need to make is what type of mortgage to apply for. There are conventional mortgages, VA mortgages -- and a favorite of first-time home buyers: the FHA loan. In many cases, an FHA loan is the best choice for a first-time home buyer. Here is why.
1. You don't need as large of a down payment.
To apply for a conventional mortgage, you often need to have 20% of the value of the home saved as a down payment. For example, if you buy a home for $100,000, you will need to have $20,000 set aside for a down payment. Saving this much money can take quite a while, especially when you're trying to pay rent at the same time! You do not need as large of a down payment for an FHA mortgage. Depending on your credit score, you may need anywhere from 3.5 to 10% of the home's purchase price. This is much more feasible and will allow you to get into the home sooner.
2. You can get approved with a lower credit score.
Lenders have different preferences and rules when it comes to credit scores, but most want you to have a score about 620 in order to get approved for a conventional loan. FHA lenders will often approve borrowers with lower scores in the 500s. You can expect to be offered a higher rate with this low of a score, but at least you will get approved. If your credit score is low for reasons beyond your control and you don't want to have to wait a year to build it up before buying a home, an FHA loan is for you.
3. You might get a better rate.
If you don't have a great credit score or a long employment history, conventional lenders may not consider you the ideal mortgage candidate. Even if they do approve your application, they may give you a higher interest rate. An FHA loan, however, is ensured by the government. The bank is taking a lot less risk in lending to you with an FHA loan, so they may be able to give you a lower interest rate even if your application is not perfect.
To learn more about the various types of mortgages and the benefits of an FHA loan, talk to a mortgage lender in your area.
When was the last time you realized you were in the red financially? Although most people don't think about their finances on a day to day basis, it can be easy to find yourself living paycheck to paycheck if you aren't careful. I began thinking carefully about the financial implications of some life decisions I was making, and I knew I had to make a difference. I talked with a loan officer about getting things together, and he was instrumental in helping me to work things out. Read more about my financial successes and failures on this little website. You might be able to avoid some of my previous mistakes.