By Bill Lyons | Updated on February 5, 2024
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    FHA loans for first-time home buyers make it more affordable for aspiring homeowners to purchase a home. The Federal Housing Authority (FHA) was established in 1934 as part of an effort to make homeownership more affordable for buyers that meet specific criteria. An FHA home loan for first-time home buyers is insured by the federal government, and potential buyers can secure a home loan for a much lower down payment than a traditional mortgage. 

    An FHA mortgage loan is in many ways similar to a VA loan, in that it is insured by the government. Since the loan is secured by the government, the lender can be more permissive with lending terms and offer borrowers more competitive rates. 

    Read on to learn how FHA first-time home buyer loans work or navigate the article using the links below. 

    What Is a First-Time Home Buyer Loan?

    FHA loans for first-time home buyers make it easier for those meeting specific criteria to secure a mortgage to purchase a home. However, FHA loans aren’t the only options for first-time home buyers. There are several loan options and programs that allow first-time home buyers to secure financing with beneficial terms.  

    You can secure a low down payment traditional mortgage loan through the Freddie Mac and Fannie Mae borrowing guidelines, which allow you to secure a 3% to 5% down payment option if you have a credit score of 620 or higher. The Department of Agriculture and The Veteran’s Administration also offer federally-secured loans for first-time home buyers, such as USDA loans and VA loans. There are also a number of local programs for first-time home buyers that are specific to particular states and regions. 

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    What Is an FHA Loan?

    An FHA loan is a mortgage loan that provides you with more flexibility than a traditional mortgage loan. In the 1930s, the federal government of the United States realized that working people were not able to afford a typical home mortgage. In order for lenders to accept lower down payments or buyers who don’t have a high credit score, the FHA program was created as insurance to protect lenders in the event the borrower defaults on the loan. 

    FHA loans allow lenders to be less reliant on credit scores and provide financing to a diverse array of borrowers, even if they don’t have perfect credit scores.

    There are a few types of FHA loans available for home buyers, as part of a traditional home mortgage to purchase or renovate a property. The FHA loan types include:

    • FHA 203b: This is a traditional FHA loan for first time homebuyers with lower income or lower credit scores.
    • FHA 203K: With this loan, you can either buy a new home or refurbish an existing one.
    • Home Equity Conversion Mortgage (HECM): This is a reverse mortgage that offers you the ability to tap into the equity you have in your home without having to pay it back until the home sells.
    • Section 245(a) mortgage: This is an option for buyers who expect a gradual increase in income. The payments start off low and gradually get bigger over the course of the loan.
    • CalHFA loans: These first-time home buyer loans are specific FHA loans in California.

    When you work with Griffin Funding, you can find an FHA loan that is right for you if you meet the qualifications. If you are ready to start looking at property to buy, get the pre-approval you need from Griffin Funding. You will know how much you can offer a seller, and you won’t waste your time looking at property you can’t afford. 

    As you go through the home buying process, you will get a better understanding of everything that goes into buying a new home. Know what you can afford, and start your search to get an idea of what is available.

    How Does an FHA Loan Work?

    For borrowers looking to use the FHA loan program, you must have at least a 10% down payment if your credit score is less than 580. If you want to qualify for the 3.5% down payment option, you must get your credit score to 580. Thus, a higher credit score can help you qualify for a lower interest rate. As far as increasing your interest rates goes, you can try to pay off credit card debt to decrease your credit utilization rate and make sure that you continue to make payments on time.

    In addition to meeting the down payment and credit score requirements, you have to be able to show two years of employment history, along with pay stubs and tax returns. The home you are buying has to be used as your primary home and can’t be a rental or secondary property. The home you want to purchase will go through an FHA inspection, and must pass the inspection for the loan to be approved.

    As the borrower, the monthly mortgage payments can’t be more than 31% of your monthly income. Your debt-to-income ratio will be scrutinized as part of the process to approve your mortgage loan.

    If you have ever filed for bankruptcy, it must be at least two years since the last time you filed. Although a bankruptcy will slow down your ability to purchase a new home for two years, once that waiting period is over, you may be able to secure an FHA mortgage loan. FHA loans are a viable way for you to get a mortgage that makes purchasing a new home affordable

    Benefits of FHA First-Time Home Buyer Loans

    There are a number of key benefits that come with securing an FHA loan as a first-time home buyer. When you work with a mortgage specialist, you can discuss the different benefits to finding an FHA loan for your needs .You will need to provide certain paperwork, but you’ll be able to secure the mortgage when you meet all the requirements. Benefits of FHA loans include: 

    • You can buy a home with a lower credit score.
    • You can purchase a home with as little as 3.5% down.
    • FHA loans tend to offer more flexibility than conventional loans. 
    • FHA loans for first-time buyers often come with low interest rates. 

    Finding the right FHA home loans for first-time buyers is as easy as contacting Griffin Funding to see what qualifications must be met. When you work with a mortgage specialist, you will get a good idea of how much you can borrow after your initial exploratory meeting. When you secure an FHA loan for a new home, you will be guided along the home buying process while being provided with plenty of professional support. 

    Who Qualifies for FHA Loans?

    Qualifications for an FHA loan are easier to meet than those for a traditional mortgage, making an FHA loan an option for those who don’t meet the stricter criteria of a traditional loan. Your credit score must be at least 500 to secure a 10% down payment on your mortgage, but once you reach 580, you only need to come up with a 3.5% down payment. 

    The home you want to purchase must also be your primary residence, and the home has to pass an FHA inspection. Furthermore, you must be able to show two years of pay stubs, W-2s, and tax returns in order to qualify for an FHA loan. The final amount you are approved for is determined by your monthly income, as the loan payments must not exceed 31% of your monthly income. 

    Learn More About FHA Home Loans for First-Time Buyers

    The benefits to securing an FHA loan help to make homeownership more affordable. With the federal government insuring your mortgage in the event of a default, lenders can be more flexible when it comes to approving you for a mortgage. At the same time, you can minimize the debt you incur when purchasing a home.

    Learn more about the FHA loans available at Griffin Funding, and get a quote from a mortgage specialist today. Take the first step in qualifying for a mortgage with our company, and get started on buying your new home now. See how much you can afford, so that you know what you can offer a potential seller when you go looking for a new home.

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.