Northern Virginia Home Loans for First Time or Credit Challenged Buyers
The FHA Loan program has long been helping people in buying their first Northern Virginia home. The program has been in place since the 1930s. Through such programs, borrowers are able to buy a home with a government-insured loan. The insurance protects the lender from any losses caused by a borrower default. The loan is especially popular for first-time buyers. According to a survey in 2012 conducted by Campbell Communication and Inside Mortgage Finance, about 53% of all the first-time buyers used FHA loans upon purchasing a home. This is really not surprising since the program offers a lot of benefits for Northern Virginia home buyers..
An FHA Loan May Work for Your Northern Virginia Home
An FHA loan is again a mortgage insured by the government. This is through the Federal Housing Administration. Financing is provided by a lender from the private sector, not by the government itself. However, the federal government insured the lender against any losses, in case the borrower fails to make payments. As a result, mortgage lenders are quite relaxed when it comes to particular guidelines in the approval process, making it an option for Northern Virginia home borrowers with limited capital, those with a poor credit score, and several other qualification problems.
Benefits of an FHA Loan
Why is it so popular to first-time buyers? There are actually a combination of factors. But here are the top benefits it offers.
- Low Down Payment: FHA allows a home buyer to make a down payment that is as low as 3.5% of the amount borrowed. When compared to similar conventional loans, such loans would require a down payment of 5% or higher. There are even some lenders which require a minimum of 10%, especially to those with poor or shaky qualifications.
- Lower credit-score cutoff: The HUD or Department of Housing and Urban Development imposed a minimum credit score of 500 for all who plan to use the FHA Loans. Still, lenders have the final say, and most of them require a score above 500. In general, the cutoff is obviously lower for government-supported mortgages. Lenders often allow a score of 600 or below for home buyers with FHA loans.
- Flexible Debt Ratios.:The amount of debt you own can be a deal-breaker during the approval process. If a borrower has too much debt compared to the income, the financing can be denied. This is known as the debt-to-income ratio. With government-backed mortgages, the DTI restrictions are lower compared to conventional loans. Lenders limit the total monthly debt to 39 to 41%. However, with the FHA loan, debt ratios can reach as high as 50%.
- Down Payment Gifts: This is by far the most interesting benefit with an FHA Loan. With this loan, the entire down payment can be gifted from a family member. Take note of the word “entire.” Most of the conventional loans do not allow 100% for the down payment funds. The borrower can get a letter from the family member who gave the money for the down payment. The letter must include the dollar amount given, the name, address and phone number of donor, and the statement that no repayment is required.
For more information on buying a home with an FHA loan CLICK HERE to contact Dwellus Group for assistance with your Northern Virginia home.