Loan Modification

FHA Loans: Qualifying for Lower Mortgage Rates

By Karen Lawson

With mortgage rates staying at or near record lows, first time buyers can maximize borrowing power for finding an affordable home. It’s possible to save tens of thousands of dollars over the life of a mortgage loan by getting the lowest mortgage mortgage rate possible. Here are some ways to qualify for a lower mortgage rate:

• Raise your credit scores: FHA currently has no minimum requirement for credit scores, but it can be difficult to find a mortgage loan if your credit scores are below 620. pay down your debts Pay all of your bills on time, and pay attention to your credit scores. Order your credit scores and reports, and check them carefully for in errors.
• Make a larger down payment: Although FHA loans require a minimum down payment of 3.5%, if you can provide enough cash to cover your closing costs and pay more than the minimum down, you may qualify for better mortgage rates.
• Eliminate consumer debt: Getting rid of credit card debt and other consumer loans will help your mortgage loan application look better. Mortgage underwriters calculate the ratioof your total debt (including your new mortgage payment and all of your installment debts) to your gross income when reviewing your application. The lower your debt, the lower your debt to income ratio, and the lower your perceived risk to mortgage lenders.

Meeting (and Exceeding) FHA Guidelines: Tips for Success

If you need help with raising cash for your down payment and closing costs, or with reducing consumer debt, these tips may help:

• FHA allows cash gifts to be used as a source of down payment funds: Cash gifts can help increase your down payment and lower your mortgage amount and reduce closing costs paid out-of-pocket. Donors must supply documentation indicating the amount of the cash gift with a statement that the amount given is a gift and does not have to be repaid.
• State and local home ownership programs: Check with city, county, and state housing agencies for programs providing grants and loans to first time home buyers, or those who buy homes in specific areas. Public service workers including law enforcement officers, firefighters and K-12 teachers may also qualify for the “good neighbor next door” program. FHA lenders and real estate professionals can help direct you to housing assistance programs in your area.
• Consumer credit counseling: Before looking for a home loan, it’s important to pay off as much debt as possible. Delaying your home purchase until you’ve reduced your debts can potentially save thousands of dollars over the life of your mortgage loan if you can qualify for lower mortgage rates. HUD approved housing counseling agencies can help with establishing a budget and negotiating affordable repayment terms with your creditors.

Don’t rush into buying a home until you have sufficient savings, credit scores, and cash flow. FHA lenders can help with evaluating your readiness for buying a home using FHA home loan programs.

Full post as published by FHA Mortgage Guide on July 15, 2010 (boomark / email).