Is it a good idea to buy a home using an FHA Loan?
Yes! FHA Loans can be a great way to purchase a home in Denver, CO because they offer:
- low monthly mortgage insurance
- government-capped low closing costs
- relaxed credit score requirements
- quicker qualify post-bankruptcy or foreclosure
- only 3.5 percent down payment of the purchase price
In addition, loan limits were recently raised and a higher percentage of homes qualify for FHA financing, making it more popular than it ever has been. In fact, since 2005, the FHA loan Program has seen a 900% growth.
Why You Should Consider an FHA Loan in Denver
Credit Score Requirement
One of the benefits of an FHA loan is that there is no required minimum credit score. Some people believe there is a minimum credit score, such as 580 or 500 but this is because their bank has overlays at those thresholds. The program does not require a minimum score.
Eight Benefits of Using an FHA Loan
Here are some more benefits of an FHA loan, that many people do not know.
- As long as you have a contract for employment, we can take 30 days of pay stubs and use that as your employment. This works well for college graduates, or people starting a new job.
- Down Payment of 3.5% – Does not have to be your own funds, however has to be gifted to you from an IMMEDIATE family member. Mom, Dad, grandma. These third-party donors can contribute money toward the home buyer’s down payment and other expenses. This is referred to as a down payment gift.
- FHA loans allow for blemished credit history- Lower FICO scores are accepted. FHA loans require 2 years waiting period between bankruptcy, 1/2 the time as a regular loan. And, FHA loans require 3 year wait period after foreclosure, as opposed to the 4 for a regular loan
- FHA does not have income limits like certain other loan programs like Fannie Mae Home Ready or Freddie Mac Home Possible loans. There are also some down payment assistance programs that will have an income cap, however rest assured, with an FHA loan, there is no income limit, and you get to borrow up to 96.5% of the home’s purchase price.
- Streamline Option – If you purchase home at a rate of 6%, and rates drop to say 4.5%, you can refinance down to 4.5% with little to no paperwork, and the increase in the loan amount is conservatively capped, so you do not pay much in closing costs.
- Easy to Qualify – It is easy to qualify for this loan, as it is not asset based, and all you need is at least a 620 credit score to qualify.
- A high debt to income ratio is allowed. A safe debt to income ratio for a first time home buyer would be 45%, however.
- Multiple Property Types – With FHA, you can buy a single family residence, duplex, condo, townhome, and even tri-plex.
What is the maximum mortgage size in Denver for 2020?
In 2019 there have been increases in 3000 counties across the United States where the new high cost limit is $726,525 for a Single Family Residence and a new floor of $314,827. In Denver County, Colorado the 2020 Loan amount limit is $561,200. If you would like to see what the county loan amount limit is for any county in the United States, you can click here.
If you chose to use an FHA- insured mortgage loan to buy a house in Denver, you should know the limits on how much you can borrow. The Department of Housing and Urban Development establishes FHA mortgage loan limits, partially based on the limits set on conventional mortgage loans. FHA loan limits tend to vary from one county to the next because they are constructed from median home values.
What are the qualification standards?
If you want to buy a house in Denver with an FHA loan, you will need to meet a few requirements.
- Be able to handle the financial obligation. This may be through: active income (W2 or self employed income, retirement, pension, disability and social security), dividends, rental income, royalties and more.
- Provide 3.5% of the purchase point for a down payment, the minimum required investment for an FHA-insured mortgage. This may come from a third party.
- Plan to occupy the residence. FHA is only for owner occupied residences for 1-4 units. You could, however, purchase a 4 plex, and live in one of the units while earning rental income on the other 3 units.
- A debt to income ratio below 55%, based upon compensating factors like credit score, employment, assets, or down payment.
What is the downside of a FHA loan?
There is no downside of an FHA loan in my opinion, especially if just starting out in investing in real estate. It is a fantastic way to start your real estate portfolio, and caters to not only first time home buyers with low to moderate income, but for borrowers who have had credit challenges in the past as well. There is a wide swath of coverage for a loan like this, that many people can take advantage of.
How do I apply for a FHA loan in Denver, Colorado?
If you would like to see exactly what you will be pre-approved for an FHA loan in Colorado, you can go to our secure loan application. This important first step is crucial in knowing exactly how much home you can afford.
An FHA loan is possibly the best home loan program for a first time home buyer with limited access to financial assets. However you should always have options, especially if you are a first time home buyer. Therefore, it is also a good idea to see what programs your local Denver mortgage broker has, perhaps your local credit union, and a local bank.
Additional FHA Loan Information
The Federal Housing Administration, or FHA, was created in 1934 as part of the National Housing Act. This government agency has made sure that loans made by banks and other private lenders for home building and home buying are insured. The objective of this organization is to improve housing conditions and standards, provide a functioning home financing system, and stabilize the mortgage market. FHA loans are a result of this effort.
The FHA does not set a required minimum credit score in order to be applicable for an FHA loan but instead, each borrower's credit in considered together. These loans have some leeway, even if you have filed for bankruptcy before, but lenders can implement their own requirements on top of those already in place. For example, some may require a minimum credit score.
Since 2005, the FHA loan Program has seen a 900% growth. Some key changes have been made, making it more popular than it has ever been. FHA maximum loan limits have been raised across the board and housing prices are in a slump. This means that a higher percentage of homes qualify for FHA financing than ever before!
These FHA Loan requirement changes mean millions more can now qualify for an FHA Loan, one of the best choices for prospective home buyers in today's market.