Are FHA Loans for First Time Home Buyers Only?

Federal Housing Administration loans are not for first time homebuyers only. They are however, a very good option for that demographic. The initiative was established in the 1930s to stimulate the real estate market that had become synonymous with foreclosures and defaults. It is suitable for first time homebuyers who have not had a lot of time to save for the large amounts required for down payment but have the desire to own a home. 

However…

There are restrictions on primary residency though. FHA will not insure a mortgage to purchase a property for investment. This is in accordance to new FHA loans. If one applies for the FHA loan, they have to live in the home they buy. Primary residency is described as occupying the property within thirty days of loan closing and staying for a year. 

What is FHA Loan?

This is a mortgage option supported by the Federal Housing Administration. It allows for very low down payments. One is allowed a down payment of as low as 3.5% for credit score of 580 and higher. One can have a lower credit score to qualify. A score between 500 and 579 requires that one pay 10% deposit. In addition, one should submit evidence of timely meeting of financial responsibilities in the past twelve months. One is required to pay insurance premiums to discourage default. The amount of interest paid is reliant on one’s credit score. 

The issue of credit score might discourage one who has declared bankruptcy or been foreclosed on. As long as the prospective borrower has been out of bankruptcy and re-established good credit, they can still apply to enjoy this service. While conventional mortgage facilities might lock you out, FHA will not. 

Considerations

One must not be a first time buyer or have a completely spotless financial history. They do have to satisfy the following requirements.

• Steady employment is a must. One has to have been in the same place of employ for at least two years. This demonstrates the borrower’s capability to keep up with the premium payments and principal installments. 

• A valid social security number and national identification are a must. These prove achievement of legal age to enter into a mortgage agreement. It also prevents fraud. One must be a legal resident of the United States of America.

• The home a borrower is looking to buy is subjected to scrutiny. It must meet certain standards to qualify as a FHA financed property. An approved appraiser must be engaged to appraise the prospective property. If the house is not approved and seller does not agree to make necessary repairs, the only option would be to pay for repairs out of pocket. 

• The borrower’s ratio of housing expenses to income needs to be less that 31%. One can get approved with a ratio of up to 40% but upon proof beyond reasonable doubt of the necessity of risk. The back-end debt ratio can be as high as 43%. In both cases, it would be prudent to present compensating factors. Such factors could be high credit score, high down payment, or long length of time with one employer.