Are you thinking about buying your first home in Albuquerque? If so, you may have heard about FHA loans. This is a popular type of mortgage with first time buyers. What is an FHA loan, and is it right for you?
What Is an FHA Loan?
An FHA loan is a loan guaranteed, or insured, by the government, namely the Federal Housing Administration (FHA). The FHA does not loan the money itself, but instead guarantees that the lender is protected if the borrower defaults on the loan. FHA loans are popular with first time buyers who may have a low credit score or not enough money for a down payment.
Who Can Get an FHA Loan?
If you’re planning to buy your first home in Albuquerque and have a lower than moderate income, an FHA loan might be right for you. Actually, you can use an FHA loan if you meet the criteria, even if it’s not your first home. The home does, however, need to be your primary residence.
FHA Loan Pros
An FHA loan can let you buy a home with a credit score as low as 500, which is far lower than what lenders usually approve. Plus, you can put as little as 3.5% down if you have a score higher than 580. This makes qualifying for an FHA loan much easier for lower income families.
So keep in mind that the lower down payment is usually for those with a higher score. If your score is around 500, you need 10% down. Either way, this is the easiest home loan to qualify for.
You also have flexibility as to the source of your down payment and closing costs. Also, an FHA loan will let the seller pay up to 6% of the loan amount to cover closing costs, as opposed to only 3% in a conventional loan. This can also prove helpful to a first time buyer to seal the deal on a home in Albuquerque.
FHA Loan Cons
How do you qualify?
In addition to credit, down payment, and maximum loan amount requirements, borrowers—and the home in Albuquerque you want to purchase—must meet other criteria:
• You must be a legal resident of the United States, must live in the country, and must be able to show two years of steady, verifiable employment history.
• The property must be the your primary residence. You can’t buy it as a vacation home or rent or lease it out.
• The property must be appraised by an FHA-approved property appraiser.
• Your front-end debt ratio (monthly mortgage payments) should not exceed 31 percent of your gross monthly income. Lenders may allow a ratio up to 50 percent in some cases.
If you want to explore the possibilities of buying a home in Albuquerque with the help of an FHA loan, contact us today. We’d be proud to help you buy your first home in Albuquerque!
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