The Best First Home Loan for a Home Buyer

Put money away in a savings account that can be used for the 3.5 percent down payment required for an FHA loan.

The Federal Housing Administration (FHA) provides insurance for loans that allows first-time home buyers to easily qualify for a home loan. In case the home buyer should default on the loan, the FHA will cover the loss for the lender. FHA considers anyone who has not owned a home three years prior to applying for a mortgage a first-time home buyer. FHA loans are only for the purchase of homes that are intended to be the primary place of residence.

Loan Requirements

FHA insured loans have the easiest qualifying requirements. Applicants with a minimum credit score of 640 and funds to pay for a 3.5 percent down payment will qualify for a FHA loan. These loan requirements may change over time, so it is best to speak with a lender regarding the most up-to-date FHA regulations. The HUD website provides a list of lenders that have been approved to finance home buyers with a FHA loan.

Loan Limit

The HUD website also provides the FHA loan limits for each county. The amounts vary depending on the median home price for the area where the home buyer intends to purchase a home. The loan amount will also depend on the type of property that is going to be purchased. FHA loans can be used to purchase one to four unit properties. The loan amount for a four unit property will be higher than that of a single family home for qualified home buyers.

Calculating Mortgage Amount

The home buyer's income and expenses will also determine how much of a loan he is qualified for. FHA lenders will take 31 percent of the home buyer's gross income before taxes to determine the maximum loan amount. In addition, the lender factors in recurring expenses along with the new mortgage payment, which should be no more than 43 percent of gross income to qualify for a certain loan amount. The lender is required to provide a Good Faith Estimate that details the monthly mortgage payment along with all the costs associated with the purchase of the home.

Getting the Loan You Want

There are several ways for a home buyer to get a FHA loan that she can afford with a great interest rate. The home buyer's credit score will determine the interest rate the lender will offer for the loan. The higher the credit score, the better the interest rate the home buyer will receive. The home buyer can also lower the monthly mortgage payments by putting a larger down payment toward the purchase of the home.

References

• HUD: The Federal Housing Administration
• HUD: FHA Mortgage Limits