Affordable Mortgage Loans from FHA
FHA Loan with Low Down Payment
FHA loans are the best bet for low down payment mortgages with less than perfect credit. In today’s real estate market the FHA loan is the best alternative for those with little money to put down.
Affordable Housing Initiatives:
First time home buyers can find help in qualifying for a home loan by visiting a local agency set up for this purpose. These agencies will counsel the potential home buyer what must be done to qualify for a loan. The counseling will include advice about credit, saving for the down payment and the loan application process. They can help those who are willing to do the necessary work to qualify for a loan.
These agencies may also help with a down payment. For low income families there are loan programs available as interest free second mortgages. These second mortgages can help cover the down payment and reduce the amount of the first mortgage. That will enable the home buyer to afford better housing.
FHA loans are available to anyone who qualifies and has the advantage of a low down payment. They do not have any income cap on the borrowers and loans are available with as little as 2.5% down. FHA loans are insured by an agency of the U.S. Government but a lending institution makes the loan such as a bank or savings and loan.
FHA loans require that the buyer pay a fee for the government to insure the loan. Known as the upfront Mortgage Insurance Premium (MIP) it amounts to 2.25% of the loan amount. It may also be financed as part of the loan but it does not count in the loan to value calculation described above. In addition to the upfront fee you will be required to pay a monthly MIP of .50% of the loan balance.
The income and credit requirements for FHA loans are more lenient than with conventional loans. For example, your monthly housing expenses with a conventional loan may not exceed 28% of your monthly income. FHA permits housing expenses of up to 29% of monthly income. With conventional loans your total monthly debt may equal 36% of total income, but with FHA loans this ratio may be as high as 42%. In addition, FHA will tolerate less than perfect credit.
From time to time, most states and/or local county governments will offer low and middle income residents special low interest rate loans.
In addition, the bond program offers persons with family incomes below a certain level a special interest free loan for the down payment.
Depending on the state or local government home buyers with family incomes below certain levels may qualify for an interest free loans up to 25% of the purchase price of the home.
Housing Assistance Office
In larger metropolitan areas there are housing assistance offices to guide you through the process. Or else, call several of your local banks or credit unions. They usually know what programs are available and will assist you with the process.