Best federal low income home loans

Discussion in 'Investing and Retirement Saving' started by Miles, Dec 21, 2015.

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  1. Miles

    Miles Newbie

    Buying a home is the biggest single investment that an average family will ever make and it is an expensive affair. Even saving up for the down payment on a loan can be a struggle for families with lower levels of income. Federal low income house loans can make buying your first home much more affordable.

    Federal Housing Administration Loans - Gov Loans

    The Federal Housing Administration, or FHA, runs a home loan program that you may be qualified for if you categorize as low-income. These loans are mortgages that are insured by the FHA covering the lender in case you cannot make your repayments. This insurance means that there is less risk for the lender and, subsequently, they can offer a lower repayment rate and/or fees.

    How to Qualify for an FHA Mortgage - Credit Score Requirements For Gov Housing Loans

    Since 2011 it is necessary for applicants to have a credit score of at least 500 to be eligible for an FHA loan. The lender can also have their own requirements but 500 is what is required by the FHA scheme.

    If you do not have a high enough credit score yet there are a few things you can do to improve it. Go to your bank or credit union and get a credit card, put your next lot of groceries on it and immediately pay it off. Make sure you don't use it for anything else; you do not want to destroy your credit score by not being able to pay off a new credit card. Alternatively, you can take out a smaller personal loan and pay it off as quickly as possible. It will take time to build your credit score but it will be worth it in the long run when you can qualify for a federal low income house loan.

    How to Qualify for an FHA Mortgage - Down Payment Requirements

    As with all home loans you still need a down payment, but the FHA loans are much smaller than normal home loans. The FHA down payment is 3.5%, much lower than you will find anywhere else. However, to get the FHA 3.5% down payment option you must have a credit score of at least 580. This is not so hard, if you can build it to 500 you can build it to 580 the same way. However, it will take a bit more time and you may be anxious to move into a home.

    How to Qualify for an FHA Mortgage - Debt vs. Income Comparison For Federal Housing

    This is why you wanted to make sure that you stopped using your credit card after building up your credit score. In order to qualify for a federal low income house loan you must pass a 'front-end' debt ratio and a 'back-end' debt ratio. The first is simply how much debt to income you will have if you receive the loan, essentially; "can you handle the debt the loan will put you in?" But the 'back-end' debt ratio includes all of your other debts; credit cards, personal loans, etc. The front-end ratio is 29% debt to income and the back-end ratio is 41%. If you are higher then either of these you will need to get your debt under control in order to pass this requirement.

    The Drawback of FHA Loans & Housing Programs

    The only drawback of an FHA loan over other home loans is that you will be paying insurance premiums for the cover you are receiving from the FHA. There are two premiums that you will have to pay; a smaller up-front premium and then a yearly premium on top of your normal mortgage repayments. Although it is another thing that you will have to manage a federal low income house loan from the FHA is still going to be much cheaper than a standard home loan.


    An Alternative to the FHA - State Programs

    Depending on where you live you may also be eligible for a state home loan program. The programs available, their terms and their conditions are very different from state-to-state but it is worth looking at. The terms may be more favourable than the FHA loan. You can often find government home loan information on your state's government website and there are many calculators online too!
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