Federal Housing Administration (FHA for short) loans are still one of the most popular loan programs for first time home buyers. FHA’s low down payment, credit requirements, interest rates, and less restrictive debt to income ratios all help maintain FHA loans as an attractive option for first time home buyers.
Now may be the perfect time for first time home buyers to purchase a home in Ohio. Multiple cities in Ohio are in the top 5 cities where home buyers have max purchase power, which takes into account home price changes, local income data and mortgage rates, including:
Cincinnati, OH at Number 4 with a median sales price of $135,000
Columbus, OH at Number 2 with a median sales price of $160,000
Cleveland, OH at Number 1 with a median sales price of $123,525
Low Down Payment
Compared to other mortgage options for first time home buyers, FHA’s 3.5% down payment is about as good as it gets. Combine the lower down payment requirement along with FHA’s stance on allowing gift funds from family members, and you have a match made in heaven.
FHA is much more forgiving on credit, both history and scores, than a conventional loan. The minimum score required to allow for maximum debt ratio and minimum down payment is a 620. However, FHA will allow you to still put only 3.5% down with a score as low as a 580. If you have a previous bankruptcy, you can qualify for an FHA loan 2 years after the bankruptcy discharge date. Previous foreclosure? You can qualify for an FHA loan 3 years after the property transferred out of your name.
Generally, interest rates for an FHA loan will be lower than a comparable conventional loan, give the first time home buyer a lower payment.
Debt to Income Ratios
FHA loans, with credit scores of 620 or higher, have a maximum debt to income ratio of 56.99%. FHA loans, with credit scores of 580 to 619, have a maximum deb to income ratio of 43%. Compared to conventional loans (minimum 620 score) debt ratio requirements of 45-50%, FHA gives you more purchasing power. It is always important to create a budget and make sure that the payment is affordable for you, regardless of what FHA allows.