FHA home loans are gaining popularity with Gen Y – Young adults in their late twenties and thirties are now looking to buy a home. However, they’re worried about higher interest rates and saving enough for the down payment. It’s not shocking to see many turning to more borrow -friendly options like FHA home loans. This loan only requires 3.5 percent down for those who qualify.
New data show that millennials are taking out FHA home loans more so than in past to buy a home. This helps them significantly when it come to competing against other buyers in markets with limited housing stock.
Based on the most recent Ellie Mae Millennial Tracker findings:
- 25 percent of all closed loans to millennials as of last November were for FHA loans.
- Across the nation, borrowers are taking out much larger FHA loans compared to prior years. For example: in San Francisco, the average FHA home loan amount was $505,871 in November 2018 vs. $460,852 a year earlier; in Boston, it was $353,680 vs. $343,219. In Washington, D.C. it was $313,169 vs. $283,584. And in Chicago it was $194,630 vs. $178,335.
- For trends on FHA loans as of November 2018 – men were listed as the primary borrower at 56 percent, women accounted for 35 percent, 9 percent were not specified.
Perks of FHA Home Loans
Security should be high in priority when it comes to borrowing. FHA home loans are low in risk since they are backed and issued by the U.S. government (the Federal Housing Administration).
Do you want to qualify for a down payment as low as 3.5 percent? All you need is a FICO credit score above 580, a DTI ratio of less than 43 percent, a steady income, and proof of employment. The home you are looking to buy must also be used as your primary residence. However, now that your down payment is less than 10 percent, you are required to pay for mortgage insurance for the life of the loan.
Tips! – Before Pursuing FHA Home Loans
Prior to committing to an FHA home loan, prepare yourself for homeownership.
Pay off outstanding debt (student debt included) – begin with loans that have highest interest rate and work your way down. Refrain from using more than 35 percent of your allowable credit limit.
Improve your credit score – this can make a noticeable difference in lowering interest rate. In the meantime, it would be beneficial to start the habit of monitoring your credit report on a consistent basis.
Create a realistic budget – record and organize all of your expenses to create a clear image of what can be afforded.
Research the housing market in your desired area – look into the neighborhoods most suitable in your budget. Take extra points in understanding the fluidity of the house markets as well.
Look for alternative ways to save money – deciding to live in the suburbs vs the city can make a big different in extra expenses. Regular routines should not become a burden as to soon become sacrificed.
Get educated on loaning process – learn what is required in applying and getting a loan approved.
Prepare your application – gather any documents the lender may need to view. It would be helpful to explain any current financial situations the lender may need to know. As a result, a full and transparent loan application will significantly increase the chance of being approved.
Note: This spirit of this article was originally published by The Mortgage Report – the exact article can be found here