FHA first-time homebuyer loans are available to first-time buyers and some people who have purchased homes before. They offer a wide range of benefits for some people – so could this type of loan be right for you? Here’s what you need to know.
What is an FHA First-Time Homebuyer Loan?
An FHA first-time homebuyer loan is a loan that’s backed by the U.S. government. They’re offered by the Federal Housing Administration and by most states, including Texas. The FHA insures lenders against potential default, which means that if you walk away from your payments, your lender isn’t going to lose all its money – and that can mean more favorable interest rates and loan terms for you.
What’s the Down Payment on an FHA First-Time Homebuyer Loan?
As with any other type of mortgage, the rule of thumb on down payments is “the more, the better.” You can use this type of loan with a down payment of just 3.5 percent of a home’s purchase price if your credit score is 580 or higher – but many lenders require you to have a credit score of 620 or 640 before they’ll let you use this type of loan.
Do You Have to Be a First-Time Homebuyer to Use This FHA Loan?
You don’t technically have to be a first-time homebuyer to use this type of FHA loan. In fact, the FHA defines a “first-time homebuyer” as someone who hasn’t owned a home for three years. That means if you owned a house, sold it, and have been renting for three years or more, you could qualify for this program. If you’re a displaced homemaker or a single parent, you could qualify, too – it depends on your situation, but it’s definitely worth discussing with a lender.
Who Should Use FHA First-Time Homebuyer Loans?
If you’re a first-time homebuyer, this may be the right type of loan for you. You may also want to consider it if:
- You don’t have a stockpile of cash you can use as a down payment
- Your credit score isn’t high enough for other types of loans
- You want to keep your interest rate as low as possible
- You want to avoid paying hefty fees on your mortgage loan
What About Private Mortgage Insurance?
If you don’t put down 20 percent of a home’s purchase price, there’s a pretty good chance that your lender will make you buy private mortgage insurance, or PMI. With some loan types, you can stop paying PMI when you accrue 20 percent equity in the home – but not with FHA loans. If you put down less than 20 percent as a down payment, you will have to pay PMI for the entire life of the loan.
Are There Loan Limits on First-Time Homebuyer Loans by FHA?
There are loan limits on this type of FHA loan. In fact, as of this writing, the national ceiling is $625,000 – and that’s in the most affluent areas. Loan limits vary based on location, so if you’re interested in this type of loan, talk to your lender about what it currently looks like in Midland (or whatever community you’re interested in buying in). The loan limit is subject to change without notice, so it may not be the same tomorrow as it is today.
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