What does shopping for a mortgage have in common with trekking through a jungle? Neither experience is one that the average American will embark on regularly. Because of their unfamiliarity, both of these adventures can be a bit overwhelming to contemplate, but they also have the potential to be incredibly rewarding when you have a knowledgeable guide to assist you on your journey. At PrimeLending of Kansas City, we’re ready to help you navigate the ins and outs of the home financing process by providing you with expert insight and information. When you have questions, we’re ready with useful answers. For example: Are FHA loans only for first-time home buyers?
Are FHA Loans Only for First-Time Home Buyers?
As the U.S. Department of Housing and Urban Development reports, the home loan program of the Federal Housing Administration (FHA) has been helping borrowers with low or moderate incomes become homeowners since 1934. The FHA does not actually make the loans. Instead, it insures loans originated by approved lenders that meet the guidelines that the FHA sets. That government-backed guarantee allows borrowers to secure mortgages with relaxed credit standards, low down payments, and low closing costs. Are FHA loans only for first-time home buyers? No. This loan program is designed to make homeownership more accessible, and you do not have to be a first-time buyer to benefit from it.
Who Can Use an FHA Loan?
Thanks to their low down payment requirements and comparatively lenient credit criteria, FHA loans are often suggested to first-time buyers. In fact, more than 80 percent of the FHA’s purchase loans are extended to individuals making their first home purchase, according to the FHA Handbook. However, repeat buyers are certainly welcome. These loans are available to anyone who can meet the qualification requirements.
What Are the Requirements for an FHA Loan?
Is an FHA loan an option for you? As U.S. News & World Report indicates, while lenders can add to or adapt the basic conditions, all borrowers who wish to use this form of financing have to meet certain requirements:
- Borrowers must intend to make the property being purchased their primary residence.
- Borrowers must be legal residents of the U.S. with valid Social Security numbers.
- Borrowers must have steady work histories.
- Borrowers must have FICO credit scores of at least 500.
- Borrowers with a FICO credit score of 580 or better need a down payment of at least 3.5 percent of the property’s purchase price. Borrowers with a FICO credit score between 500 and 579 must make a down payment of at least 10 percent.
- Borrowers must resolve or explain any judgments or collections on their credit reports. Delinquent federal debts or judgments or debts resulting from prior FHA loans are not allowed.
- Borrowers must have acceptable debt-to-income ratios.
- Borrowers must be at least two years out from a bankruptcy. When a borrower’s history includes a foreclosure or multiple bankruptcies, then at least three years must have passed.
- Gifted funds from appropriate sources may be used for the down payment as long as proper documentation is provided.
- An FHA-approved appraiser must evaluate the property. It has to be in compliance with the program’s minimum property standards, which are intended to verify that it is safe, sound, and secure.
- An FHA-approved lender must originate the loan.
What Do Experienced Buyers Need to Know?
The fact that you’ve bought a house before will not prevent you from securing an FHA loan. Whether you have sold that property or turned it into a rental, you can still use an FHA loan to purchase a new primary residence if you meet the program’s requirements. However, there is one factor that experienced buyers will need to be aware of. As The Motley Fool explains, you are generally only allowed to have one outstanding FHA loan at a time. While exceptions can be made under certain circumstances, if you’ve already used an FHA loan to purchase a property, and that mortgage is still outstanding, then you may not be able to qualify for a new FHA loan.
Are FHA loans only for first-time home buyers? Clearly, the answer is no. Is an FHA loan the best form of financing for you? Determining the answer to that question is a bit trickier, but the team at PrimeLending of Kansas City would be happy to help you explore the possibilities. We offer a wide range of loan products and programs, including our FHA loan program, and we’ll provide you with personalized, step-by-step guidance throughout the loan process. Whether you are just beginning your hunt for financing or in need of a second opinion, we would be delighted to work with you. Reach out to us today to schedule an appointment with one of our knowledgeable loan officers.