Feeling like your financial situation won't allow you to purchase your first home in Berks County? If so, an FHA loan may be right for you. Many people choose FHA loans, especially first-time buyers. Why is it especially important for first-time homebuyers? A FHA loan requires a low down payment of just 3.5%. This makes it easier for first-time homebuyers to afford a down payment. As an added bonus, sellers might be able to contribute to closing costs as well, further reducing the amount of cash you have to spend. Gifts from family members or qualified non-profits may also be used as down payments. A conventional loan also offers down payment assistance, but it requires the buyer to provide a minimum amount.
In general, FHA loans are easier to qualify for. A lower debt-to-income ratio is allowed, especially when compared to conventional programs with low down payments. That means having the ability to comfortably afford a slightly higher loan amount. Almost every single mortgage company and mortgage broker offers FHA loans.
It is also easier for a co-borrower to contribute to an FHA loan. FHA programs allow for a co-signer to help lower debt ratios to a qualifying level if the payment on a home is out of reach. A co-signer must qualify for the new mortgage and any existing debt as well. This would likely mean that the co-signer would be responsible for two mortgages. A new FHA loan on top of their existing one. Their credit scores must also qualify. If there are multiple people agreeing to take on a new home loan, lenders will request credit scores and use the lower one of the group.
Lenders like FHA loans as well. As long as the lender uses appropriate FHA guidelines when evaluating and approving a mortgage, the loan carries a guarantee to the lender. Should the loan ever go into default, the lender is then compensated for the loss. This guarantee is financed with two different forms of a mortgage insurance policy. There is an upfront insurance premium that is rolled into the loan amount and there is an annual premium that is paid in monthly installments, included with the monthly mortgage payment, insurance and property taxes.
FHA loans are not for investment properties, but available for owner occupied units. This means financing for a rental property or second home is not available. Conventional loans can be used for non-owner occupied units, but not FHA loans. There are also loan limits for FHA loans and these limits can vary based upon location. FHA loan limits are based as a percentage of the median home price for the area in which the property is located.
However, for most first-time homebuyers, FHA mortgages are the loan of choice. Low down payment, easier qualifying, relaxed debt ratios and credit make these programs ideal for many first-time homebuyers.
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