“I’m not a first-time homebuyer. Why would I apply for an FHA loan?” This is a common question directed at FHA loan lenders in San Diego. It points toward a common misunderstanding about FHA loans.
FHA loans are so readily associated with first-time home buyers that is frequently assumed that those are the only purchasers who qualify. This is an easy mistake to make, considering that around 82% of FHA loans do go to first-time buyers.
If you have already bought a home in the past, you may qualify for an FHA loan now. But why would you consider getting one if you are not in the principal target market for this loan product?
To help us answer this question, let’s look at the reasons why so many FHA loans are taken out by first-time homebuyers.
First-time homebuyers are often:
- Relatively young.
- Still working on establishing credit.
- Often just starting out in the workforce with entry-level jobs.
- May have a poor debt-to-income ratio owing to factors like substantial student loan debt.
- Planning to cover their down payment using a gift.
FHA loans are tailored in such a way that they help homebuyers work around some of these issues. The credit requirements are lower, as are the debt-to-income requirements. Down payments can be as low as 3.5%.
It is for these reasons that FHA loans are ideal for first-time homebuyers. But even a person who is purchasing their second home or a subsequent home can make use of these benefits.
Situations Where an FHA Loan May Be Ideal Even If This is Not Your First Home Purchase
Let’s say that this is not your first home purchase. Here are some other examples of scenarios where an FHA loan might be a good fit:
- If your credit rating has taken a few hits or you are late establishing credit. Even if you have a great financial situation right now in general, it can take time to rebuild credit or to build it in the first place. That should not stand in the way of you buying a home.
- If you need to keep your finances liquid. While there can be benefits to a large down payment, it does mean having less money available for both everyday and emergency expenses. Perhaps you’re earning solid income, but do not have a large pile of savings. In this case, an FHA loan may be more appropriate than a conventional loan that requires you to tie up more money in a down payment.
- If your debt-to-income ratio is not ideal. There may be situations where you can afford to make mortgage payments, but your debt-to-income ratio still would not be ideal to qualify for a competitive conventional loan. The requirements are more relaxed for FHA loans.
Situations like these have become commonplace, especially in cities like San Diego which were hit hard by the recession. Even though there has been time for recovery, it means that many people who live in the area have had to rebuild.
Even a brief period of financial struggle can have long-term effects on a person’s credit score, debt-to-income ratio, and other financial markers. If you are in such a position, an FHA loan may empower you to buy the home of your dreams.
Do You Qualify for a San Diego FHA Loan?
You now know that being a first-time home buyer is not a requirement to qualify for an FHA loan. So what requirements to you must meet?
- You must be at least 18.
- The minimum credit score is 500, but you need a credit score of 580 or higher if you want to only put 3.5% down on the house.
- You must demonstrate two consecutive years of steady employment with a single company (and still be working there).
- You will need to be able to prove enough income through documentation.
- The house you wish to purchase will have to serve as your primary residence. You must have it appraised by someone who has been approved by the FHA to do so.
- You will need to be prepared to pay for private mortgage insurance (PMI). This is an ongoing expense.
You can see that these eligibility requirements are basic. They are not nearly as restrictive as many homebuyers imagine.
What if you have experienced a foreclosure or you have a bankruptcy in your past? Neither must hold you back. These do not prohibit you from qualification for an FHA loan.
Apply for an FHA Loan with Maureen Martin
Now you are more familiar with FHA loan basics. These government-backed loans have benefits not just for first-time homebuyers, but for anyone looking for a low-down payment or easy loan qualification.
If you still have questions about FHA loan eligibility, or need help deciding whether an FHA loan would be suitable for your needs, Maureen Martin can answer your questions. Please call (619) 857-7191 to schedule a consultation or start an FHA loan application.