3 Facts First-Time Idaho Homebuyers Need to Know about FHA Loans

Idaho has one of the fastest-growing populations in the United States. In 2018, its number of residents increased by 2.09%, while the national average was less than a percent.

Besides the lower cost of living and beautiful countryside, home prices are more affordable than other states. The median home value in 2020 is less than $300,000 despite a nearly 10% increase from the previous year. Compare that to its neighboring state Utah, where homes now sell for almost $400,000.

First-time homebuyers may also take advantage of an FHA loan Meridian program, where interest rates and down payment are usually low.

To better understand how it works, here are a few facts about FHA loans that new homebuyers should remember:

What Is FHA Loan?

The Federal Housing Administration (FHA) loan is a program that offers an affordable mortgage to low- and middle-income individuals. Many people apply for it since the minimum down payment is only 3.5% of the property price.

The interest rates can vary, but as of April 2020, it’s 4% for a 15-year loan and 3.75% for a 30-year mortgage. Applicants can also choose between fixed- and variable-mortgage rates.

Although designed for people with low wages, it doesn’t set any minimum or maximum income limits. However, the applicant must meet the ideal debt-to-income ratio. This 2020, the total mortgage must not exceed 31% of the monthly income, while the overall debt should be below 43%.

The applicant must be employed for at least two years in their present employer or have a steady work history to qualify. They also need a Social Security number and proof of credit history.

couple getting the keys to their new home

What Is the Ideal Credit Score?

The ideal credit score depends on the lender. Usually, it is at least 580, which makes it inviting for applicants with a thin credit history or fair credit score. Note, however, that this may change in 2020.

Reports suggest that because of the coronavirus pandemic, lenders may impose a higher credit score to applicants. Idaho homebuyers can raise their down payment to at least 10% to increase the chances of approval.

Does It Need Mortgage Insurance?

Although FHA loans are federally backed mortgages, they may still require the applicant to pay mortgage insurance. It is a lender’s guarantee in case the person defaults on the mortgage.

Mortgage insurance kicks in when the applicant pays less than 20% of the value of the property. It may end automatically as soon as the total home equity paid is around 78% to 80%.

For FHA loans, the homeowner may pay two types of mortgage insurance. The upfront insurance premium is 1.75% of the borrowed money. They pay it once as soon as the lender releases the loan. Individuals may then spend on annual mortgage insurance premium, which can be as high as 1.05%, for years.

How Much Are the Closing Costs for an FHA Loan?

It varies by state, but it can be around 3% of the home price and is different from the down payment. Homebuyers, though, may consider a gift fund to cover for it, the rules of which can depend on the lender. Usually, they will require a letter from the sponsor, and the gift must be seasoned. It means that it should have been on the account for at least 60 days before the release date.

First-time homebuyers may find Idaho a great state to start their lives due to affordability, especially housing. As long as they meet the requirements, they can secure a home through FHA loans and pay lower interest and down payment. 

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