Many people qualify for an FHA loan but don’t realize it. They’re not just for first-time buyers, student loans aren’t dealbreakers and there are no income limits.
RICHMOND, Va. – Facing with elevated interest rates and climbing home prices, more potential buyers want to know their loan options – alternative ways to buy a home without breaking the bank.
For many of these people, a Federal Housing Administration (FHA) loan is a good option. They offer more lenient financial requirements than conventional loans, and they’re often a popular source of financing for those buying their first home.
Myth: FHA loans are only for first-time home buyers
Perhaps the most common myth is that an FHA loans is for first-time homebuyers. While first-timers can benefit greatly from FHA loans, they’re not the only buyers who can qualify for one.
Fact: Anyone can qualify for an FHA loan as long as they meet the financial requirements. First-time homebuyers often view it as a more attractive option because it helps them buy a home even if they have a lower credit score and little down payment money.
Myth: You can’t get an FHA loan if you have student loans
Fact: Lenders do factor student loan debt into a borrower’s debt-to-income (DTI) ratio, but the guidelines have changed. FHA lenders must use the actual payment amount for student loans or 0.5% of the student loan balance if the payment is showing zero or deferred.
Myth: If you make a 20% down payment, you don’t need FHA mortgage insurance
Fact: No matter the size of the down payment, borrowers are required to pay the mortgage insurance premium (MIP), which protects FHA lenders in case borrowers are unable to pay back the loan. MIPs are paid up front at closing and throughout the life of the loan on a monthly basis. If a borrower has a down payment of at least 10%, then they’re eligible for their MIP to drop off after 11 years.
Myth: There are income limits for FHA Loans
Fact: There are no income limits that would disqualify or prevent anyone from obtaining an FHA insured loan – but you do need a two-year employment history and established credit history to qualify.
Myth: FHA loans are only for single-family homes
Fact: FHA loans can be used to purchase properties with one to four units, and they can also be used to finance manufactured homes if the home’s value is within the FHA loan limits. FHA even offers a limited 203(k) program that allows buyers and homeowners to add $35,000 to their mortgage if they use it to repair, improve or upgrade their home.
According to HUD, the national FHA limits for a single-unit property are $472,030 in lower-cost areas and $1,089,300 in areas that are more expensive.
Source: Virginia Association of Realtors®
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