Don't have enough money for a down payment? Find out how FHA insured loans can help!

Buying your first home? Or do you have bad credit and need some help qualifying for a loan? A FHA loan might be the solution for you!  The Fair Housing Administration has been helping people finance their home purchase for nearly 8 decades. This particular type of loan appeals to first time buyers or low to moderate income homebuyers for a number of reasons, some of which include:

·FHA loans requires less cash for your down payment and closing costs

·Even homebuyers with lower-income levels are eligible for FHA loans

·It allows for co-applicants to help you qualify

If you are considering an FHA loan, you should familiarize yourself with the basic requirements and procedures associated with an FHA loan.

Although people typically refer to them as an “FHA loan,” the name is a bit misleading. In actuality, the Federal Housing Administration, or FHA, does not loan money. Instead, they back, or guarantee, loans that are made by lenders. Because the loan is insured by the FHA, lenders are more likely to offer a home mortgage loan to a first time buyer, someone with less than perfect credit, or a buyer with relatively low income.

Because FHA backed loans are aimed at first time and low income buyers, the criteria for approval is less stringent than other types of loans. As with other loans, the requirements for getting approved for an FHA loan are subject to change; however, as of 2013, some of the basic requirements include:

·At least two years of employment history without a decrease in income. Preferably, your employment will be with the same employer or at least in the same field. For self-employed applicants, you will likely need to document three years or more worth of income from the business.

·A credit score of 620 or above. Although you may qualify with a score below 620, your interest rate will be higher. A significantly higher credit score will typically lower your interest rate.

·No bankruptcy or foreclosures within the last two to three years. If you have filed bankruptcy or been through a foreclosure, your credit needs to be essentially unblemished since that event.

·Your new mortgage payment, including taxes and insurance, should not exceed 28 percent of your gross monthly income. Your total fixed debt each month should not exceed 36 percent of your gross monthly income.

If is important for first time home buyers to understand that these guidelines are just that – guidelines. Each borrower is evaluated on an individual basis, meaning that if you fall short on one of the guidelines it should not discourage you from applying as you could still be approved.

Along with more liberal approval criteria, an FHA loan also provides other benefits to first time home buyers such as a very small down payment requirement. Where other home mortgage loan programs can require as much as 20 percent down, an FHA loan may require as little as 3.5 percent down. Furthermore, there are a number of grants that may even help low income or first time home buyers come up with the necessary 3.5 percent down payment.

Applying for an FHA loan is relatively simple; however, you will need to be prepared to provide a considerable amount of information. Ask your real estate agent for the name of a lender in your area that offers FHA loans or check the Department of Housing and Urban Development website for a list of approved FHA lenders near you.