FHA loans for first-time buyers and second chances

Who FHA loans are for

FHA loans are insured by the Federal Housing Administration, which lets lenders say yes to borrowers they might otherwise turn down. You do not have to be a first-time buyer to use one, but most of my FHA borrowers are. If you have a steady job, a modest amount saved, and a credit file with a few scars on it, this is usually where I start.

The home has to be your primary residence. FHA does not finance vacation homes or rentals, though you can buy a two- to four-unit property, live in one unit, and rent out the others.

How it works

The minimum down payment is 3.5% of the purchase price with qualifying credit. That money can come from your own savings, a gift from family, or a down payment assistance program. The seller can also pay some of your closing costs, within limits.

In exchange for the smaller down payment, FHA charges mortgage insurance: an upfront premium that is usually rolled into the loan, and a monthly premium that is part of your payment. For most FHA loans with a small down payment, the monthly premium stays as long as you have the loan, and the usual way to drop it later is to refinance into a conventional loan once you have equity. I explain that on day one so it is never a surprise.

FHA sets a maximum loan amount by county, and it changes each year. Most homes around Texarkana fall well under it. I will confirm the limit for the county you are shopping in.

What to bring

I can take your application online, over the phone, or at my office on Summerhill Road, and I take evenings and weekends by appointment. Spanish translators are available. To get a pre-approval letter you can shop with, I will usually need:

• A month of recent pay stubs, or two years of tax returns if you are self-employed
• Two years of W-2s or 1099s
• Two months of bank statements for the accounts you will use for the down payment
• A photo ID and your Social Security number so I can pull credit
• If any of your down payment is a gift, a short letter from the person giving it

Things people get wrong about FHA

A few myths keep good buyers from applying:

• It is not only for first-time buyers. Anyone buying a primary residence can use it.
• There is no income cap. FHA limits the loan amount, not what you earn.
• An FHA appraisal is not a home inspection. The appraiser checks that the house is safe, sound, and secure, and flags things like peeling paint on an older house or a missing handrail. Get your own inspection too.
• An FHA offer is not a weak offer. A clean, well-documented pre-approval matters more to a seller than the program name.
• You can have a co-borrower who will not live in the house, which helps some younger buyers qualify.

What happens next

Once you apply, I pull credit, run your file through automated underwriting, and shop it across a network of lenders to find the one whose FHA guidelines and pricing fit your situation. You get a pre-approval letter to hand to your agent. When you go under contract, the lender orders the appraisal, and I keep the file moving and walk you to closing.

All loans are subject to credit approval, and program terms vary by lender.