Do I Qualify for a FHA Home Loan in Boca Raton?
When the time is right, and you finally want to find a home for yourself, there are many things to consider including which home loan is right for you. There are a couple of different types of loans for homes including the Federal Housing Administration (FHA) Loan, an adjustable rate mortgage (ARM), and a fixed-rate mortgage aka conforming loans. There is a lot of information about them, but they all have their points and issues.
ARM and Fixed-Rate Mortgages
The only significant difference between an ARM loan and fixed-rate mortgage is the interest rate. If you are approved for a fixed rate mortgage its interest percentage locks in at the time your loan was approved. With an adjustable rate mortgage, the interest rates usually start lower than fixed rates but eventually can change and can become much higher if not carefully watched. Before taking out an ARM loan make sure to find out:
- • How high your rates can go and how high your monthly payments might be?
- • How often your interest rate will adjust?
- • How soon your payments could change or go up?
- • Is there a cap or lower limit on your interest rate?
- • Will you be able to afford the loan if the interest rate and monthly amount both are maxed out?
To take advantage of the lower rates, fixed rate mortgage holders have to refinance. Refinancing can cost a few thousand dollars in closing costs, another trip to the title company’s office, not to mention how much time it will take to dig up tax forms, bank statements, and anything else they may want. Rates and payments can rise significantly.
To take advantage of lower interest rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company’s office and several hours spent digging up tax forms, bank statements, etc.
Federal Housing Administration (FHA) Loans
- • Credit score of at least 500 (10% down) but prefer 580+ (3.5% down)
- • Be a first time home buyer
- • Downpayment of at least 3.5% (this can be savings, monetary gift, or a grant)
- • Closing costs (Sometimes the lender will include it in the mortgage)
- • Must be an FHA approved lender
- • Mortgage insurance is required when borrowers put down less than 20 percent
- • Possibly applying for an FHA 203 (k) loan for home improvements
- • Check the loan limits before submitting your application to make sure you qualify
Your credit score helps determine your downpayment and even your interest rate for an FHA loan. For 500 – 579 10% down is required, but if you have 580 – 620, then it can be as low as 3.5% down. When it comes to the down payment, you can use savings, monetary gifts, grants, or even your 401k. A 401k is made to set money aside from your paycheck to slowly build up a retirement fund for you. While nothing is keeping you from cashing out your 401k early, there are early-withdraw fees and possibly tax penalties. But there is a provision that allows you to borrow from your 401k for a first time home buyer and pay it back over time. While this sounds like a good deal there are a couple of pitfalls include losing your job. If you lose your job at the company that has your 401k than might only have 60 days to repay the loan in its entirety. One of the other downsides is that while paying it back, you cannot make your maximum 401k contribution and miss out on employer matching.
If you’re a first time home buyer, then you have a lot of decisions ahead of yourself. Determining which kind of home loan would work best for you, getting a down payment, and gathering the documentation needed for the application process. There is a lot of work that goes into becoming a homeowner and lots of options, especially for first time home buyers. Making sure you get the rate you need at the price you need can keep you from losing said home down the line. Being informed and asking questions is essential, is a qualified FHA lender for HUD if you have any questions about the best home loan rates in Boca Raton.