No Credit History? No Problem.
The dream of homeownership may seem impossible.
Especially if you have a limited credit history or have had financial difficulties in the past. FHA loans remove those obstacles and make homeownership accessible. With low down payments and flexible qualification guidelines, you can buy a home now instead of waiting for years.
Gen Z'ers Aren't Buying Directly in Urban Areas
Cities and close-in suburbs are the most expensive places to buy, so Gen Z'ers, who work remotely more often than not, look to smaller towns for their first home purchase. Their mindset seems to be, "if I can get Whole Foods to deliver, I don't need to be five minutes away." These kids grew up with the internet, so shopping for a new town via social media is perfectly normal. Some small towns are experiencing a renaissance of young homeowners, boosting the local housing market and economies.
Some may wonder how a generation this young is already able to close on mortgage because it is believed that a mortgage requires a down payment of 10-20%. However, an FHA mortgage offers a lot of flexibility and lower down payments, which makes it a great option for first-time homebuyers.
Take Advantage of an FHA Home Loan to Buy Your First Home
The original FHA loan program was unique in that a borrower only had to put down 20% to get the mortgage. Times change, and 20% down on house is a huge chunk of change that makes homeownership out of reach for most first-time buyers. Fortunately, FHA has lowered the required minimum down payment to a mere 3.5%, something that is easily attainable for even the youngest Gen Z buyer.
FHA sweetens that offer two ways. The down payment money can be a gift, and your closing costs can be paid by the seller, and that money too can be gifted to you.
Here are some of the FHA guidelines make home buying a possibility for Gen Z'ers. There are three basic factors an underwriter considers when they're reviewing a loan application – employment, credit, and debt.
Don't think you can't qualify for a home loan just because you haven't had your job for two years. With an FHA mortgage, you may even be able to get financing with a written offer, as long as you start work within 60 days of closing.
Low Down Payment
FHA guidelines let you buy a house with as little as 3.5% down. That's only $5,621 on that median $160,600 home, or roughly 900 venti lattes.
Generous Credit Requirements
One of the disadvantages of youth is that you haven't had the time to build up a strong credit file, and you may not have a strong credit score yet. Or you had some youthful indiscretions with a credit card in college that hit your limited profile pretty hard. FHA accepts scores as low as 600 for that 3.5% down payment, and even lower when you can put more down.
Why are the youngsters out buying houses when their older siblings are happy to rent?
Flexible Debt Ratios
FHA also provides a higher debt ratio than conventional lenders, up to 45% in some cases. Your debt ratio is the calculation of your monthly obligations – car payment, credit card, student loans, and any other monthly debt you carry – divided by your gross monthly income. If your income is $3500 per month, FHA allows you $1,575 in monthly debt. This number does include your house payment.
Competitive Interest Rates
FHA offers very competitive interest rates, especially when you consider the overall guidelines of the program. Most borrowers opt for the 30-year fixed-rate loan.
Overall Payment Structure
The base of any mortgage payment is Principal and Interest (PI). When you calculate a mortgage payment on your own, this is the number you probably get. Then there is a monthly premium for your homeowner's insurance and real estate taxes (TI). When you see a payment that your loan officer calculates, you'll see PITI noted by that amount.
Additionally, if you put down a minimum amount, you'll pay a Mortgage Insurance Premium (MIP) every month, usually between .45 and 1.05% of the loan amount. Assuming you bought a house for that $160,600 and put down the minimum 3.5%, your MIP adds about $8 a month to your payment.
Find a Mortgage to Help Jump-Start Your American Dream
Buying a house is completely within your reach. At PrimeWay, we're here to educate you on the home buying process so that you are ready to buy a home a lot sooner than you ever thought possible.