An FHA loan is an excellent option for almost any home buyer. With low down payment requirements and flexible terms, FHA loans help a wide variety of people become homeowners.
If you are considering an FHA loan in New York, we have you covered. From the requirements to the terms, we will go over everything you need to know about applying for an FHA loan.
What Is an FHA Loan?
An FHA mortgage is a home loan that the Federal Housing Administration insures. The insurance on the loans acts as protection for the lenders. This option allows for easier qualification terms.
You’ll see interest rates that are below average, as well as easier credit score requirements. One of the biggest perks is that your required down payment starts at 3.5%.
Due to their flexible terms, low-interest rates, and easier credit terms, FHA loans are popular with New York first-time homebuyers, as well as people with low incomes and credit scores. Anyone can apply for an FHA loan, however.
Requirements of an FHA Loan
There are a few requirements you will have to meet to apply for an FHA loan. First, if your credit score is 580 or higher, you will need a 3.5% down payment. If your credit score is between 500 and 579, you will need a 10% down payment.
Your debt-to-income ratio needs to be under 50%. This requirement means that the amount of debt you have will need to be under 50% of your income. You’ll also need a stable income and a history of employment.
To qualify for an FHA loan in New York, the home must be your primary residence. You also cannot have had a foreclosure within the last three years. These requirements are a lot lower compared to traditional mortgages.
For example, you will still be able to get an FHA loan in New York with a credit score of 500. With a traditional loan, your score must be over 620. Conventional loans also require debt-to-income ratios of 43%.
Why is a New York FHA Loan So Affordable?
What makes the FHA loan program possible are the interest rate premiums. Without this insurance, a bank would not be able to afford FHA-insured loans. This premium is known as the MIP or mortgage insurance premium.
For an FHA loan, there are two kinds of mortgage insurance premiums. One is paid annually, and one is a lump sum you pay when the loan is closed. With the annual premium, this becomes less each year you pay off more principal.
At a later date, you can also refinance out of your mortgage insurance premium. With a refinance, you will see better terms, and you will be able to shorten your mortgage length if you wish.
Benefits of FHA Loan New York
If you are looking into an FHA loan, there are a lot of benefits to consider. First, if you cannot put a large down payment down, an FHA loan allows you to get a mortgage with a small down payment.
Even if you have money saved for a down payment, an FHA loan is an excellent option if you want to keep your cash for other things. You can use cash for home improvements or as an emergency fund.
Your down payment can also come in the form of a gift with an FHA loan. This gift could be your parents, employer, or a government program.
FHA loans also allow you to get a mortgage if you have higher debt-to-income ratios. To calculate your debt-to-income ratio, you take your total income compared to your total debt. If you’re earning $5,000 a month and your debt payments equal $2,000 a month, your debt to income ratio is 40%.
Another benefit to FHA loans is the credit requirements. You only need a score of 500 to qualify for an FHA loan. This requirement allows buyers with poor credit scores to still own homes.
Getting Started with an FHA Loan
Getting started with an FHA loan in New York is a simple process. First, you will want to gather all your income and expenses to know where you stand each month. Next, take stock of your savings account to see what you’ll be comfortable putting down.
From here, you can run your credit score for free from the Federal Trade Commission. Check your score for any discrepancies. Take a look at your score so you can determine your down payment and what would work best for you.
Before you apply, it is also helpful to set your monthly budget. Looking at your income and fixed expenses such as car payments and student loans will give you a ballpark of what you can afford.
You will also want to consider your down payment. Depending on your credit, you’ll need to put between 3.5% and 10% down. The more you put down, the lower your payments. However, if you are doing any home repairs, you may want to keep some back for construction and moving expenses.
How to Get an FHA Loan
Applying for an FHA loan has never been easier. With flexible terms and a wide range of options, we will find an affordable loan that gets you into your new home.
To apply for an FHA loan or to see if a refinance or conventional loan is right for you, fill out the contact form here. You’ll be one step closer to owning your next home.
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today to determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.