Buying your first home in Jacksonville is something many individuals dream about but high credit score requirements, large down payments and substantial closing costs can make it seem unrealistic. Federal Housing Administration loans, also known as FHA loans, are one option for first-time home buyers to make this dream become a reality.
What is an FHA Loan?
FHA loans are home loans that are guaranteed by the Federal Housing Administration. These loans are available from many private lenders and are enticing to first-time homebuyers because they don’t require a full 20% down payment. These loans are also easier to qualify for as borrowers don’t need high credit scores to receive approval.
What are the FHA Loan Qualifications?
The qualifications for an FHA loan are much less than a conventional type of loan, making it easier for first-time homebuyers in Jacksonville to qualify. To receive approval for an FHA loan, a few factors are considered:
Down payment: You don’t need the recommended 20% down payment, which is a large benefit for this type of loan. You can qualify for the loan with a down payment as low as 3.5%.
Credit score: To qualify for a conventional home loan, you typically need a credit score of 620 or higher. With an FHA loan, borrowers can qualify with credit scores as low as 580.
Debt-to-income ratio: The debt-to-income ratio is used to determine how much of your income is used to pay off debt each month. For FHA loans, you can qualify with higher debt-to-income ratios — even as high as 50%. However, with other types of loans, your debt must be 36% or less.
Income: As with most types of loans, you must bring in a certain amount of money each month to pay off the loan. With an FHA loan, there are no required income limits you must reach. This makes this loan option ideal for lower-income individuals.
Are There Additional Fees and Rates?
One drawback to FHA loans is you may not need a significant down payment or a large income, but you will still need some money to pay FHA fees. All FHA loans have a mortgage insurance premium. This premium is charged when you closed on the home, and in many cases, can be included in your monthly mortgage. However, this premium is 1.75% of the entire loan. This means you will be charged thousands of dollars in fees that you will want to prepare for.
How Do I Know What’s Right for Me?
As you look for your dream home in Jacksonville, do your research. Look at your own financial situation and determine what loan option would be in your best interest. Then, shop around and speak with various lenders who can provide more information and details about programs, rates, and expectations as you begin the home-buying process.