FHA Loans for First Time Home Buyers Explained | 2020 Requirements

I go over FHA loans for first time home buyers and the 2020 requirements. FHA loans are a great tool for any potential home buyer and I'll cover the credit requirements as well as how to get approved.

0:00 - What does a FHA loan do
A Federal Housing Administration loan, or FHA loan is a mortgage that is insured by the Federal Housing Administration or FHA for short, and issued by an FHA-approved lender. FHA loans require a lower minimum down payment and lower credit scores than many other loans

As far as what does an FHA loan do, an FHA loan is a great tool for a first time home buyer and is also great for people that may not be able to come up with a large down payment or even if you have less than ideal credit..

In fact, its one of the most common types of loan for a person to get that’s a first time home buyer because it allows people to put sometimes as little as 3.5% down as well as for people that have a credit score even as low as 500 in certain cases.

The FHA program really benefits people like recent college graduates, newlyweds, or people who are still in school but at a stage in life where they need a home or people that have faced bankruptcy or foreclosure.

0:49 - Is a FHA loan easy to get
So is an FHA loan easy to get. Well yes and no. Its easy in the sense that, a lot of people buying their first home have bad credit or don’t have much for a down payment.

Now, the not so easy part is just that amount of paper work, and documentation of proof of income and things like that but that’s going to be pretty much true regardless. But, to help with the process, you’re going to want to just have tax records and w2s for the past 2 years and easy access to bank statements and they may ask about any large transfers of cash.

2:46 - FHA Loan Requirements 2020
Now to just give a basic overview on what the FHA loan requirements 2020 are, chances are this will stay pretty much the same for years to come. Perhaps a few minor changes here and there.

Now there are some limits to an FHA loan as well which I'll show in the video. You can't get approved for an unreasonable amount.

As far as down payment, the FHA loan requirement is you can put as little as 3.5% on a home. Now, if you have really bad credit, we’re talking low 500 credit score, you’re going to have to have 10% down on a home. As far as income, you’ll have to have a debt to income ratio of 43% of less.

There's something known as the 12 month rule. For best results, you should plan to begin the FHA loan application process with no less than 12 consecutive calendar months of on-time payments for all financial obligations including rent/mortgage payments. Those 12 months should be up to and including the month you apply for the loan. Now these 2020 requirements are still reasonable which is why I recommend FHA loans for first time home buyers.

5:44 - What credit score do I need for an FHA loan
Now as far as what credit score do I need for an FHA loan, even if you have a 580 credit score or above, you likely will only have to put 3.5% down on your home and you would still qualify.

If you have a lower score than than, you could still qualify if you have above a 500 but like I mentioned earlier, you’re going to have to put 10% down a home. So, being pretty flexible is another reason why FHA loans for first time home buyers is a great option in 2020.

7:22 - What is the downside of a FHA loan
Now there are for sure downsides to FHA loans and in general, if you can qualify for a conventional loan I would probably recommend going with that versus an FHA loan.

Now the main drawback to an FHA loan is going to be the special mortgage insurance. Basically, on a normal conventional loan, you’d have to pay private mortgage insurance if you put less than 20% down. This insurance doesn’t really benefit you though, it benefits the lender in the case that you can’t afford to pay your loan and you default on your mortgage. Now once the loan to value ratio falls below that 80%, then you can get that mortgage insurance removed.

But with an FHA loan, the special mortgage insurance known as mortgage insurance premium, it won't be removed. And you have an upfront fee, which ends up being about 2% of the loan.

But don't be discouraged as far as using an FHA loan as a first time home buyer. There are still options to get that primum removed. Lets say your financial situation changes down the road and you have more savings, better credit, and more income. Well, you could try to refinance your loan into a conventional loan. Plus, most people end up moving anyways before they hit the full 30 years.

Let me know if you have any other questions as far as FHA loans for first time home buyers!

Tips On Buying a Home
https://youtu.be/guSDzJ1Jlzk

First Time Home Buyer Experience
https://youtu.be/vGuW1OUG8V4

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