What’s the best way to buy a home? Becoming a homeowner is exciting, but new home buyers get overwhelmed with the various loan options.
The mortgage loan and your down payment influence the length of the term and how much home you can afford. Some home buyers opt for an FHA home loan due to its lower barrier to entry. The loan allows people to buy a house with a down payment as low as 3.5% of the purchase price.
What's in this article?
While the low down payment requirement allows you to afford a larger home quickly, the FHA home loan is not for everyone. Discover what you should know before taking out an FHA home loan for your dream home in Des Moines.
Get Approved for a Mortgage Loan
Seeking approval for a loan will establish how much banks will lend you. When applying for a mortgage loan, you can either seek prequalification or preapproval.
Prequalification informs you if a bank offers you a loan, while preapproval provides you with loan amounts and interest rates. While preapproval yields more clarification, lenders review your income, assets, and credit score.
Mortgage preapprovals last 60 to 90 days and give you an idea of how much house you can afford. Preapprovals also help with refinancing your existing mortgage loan.
Ready To Take Your Next Step?
Reach the Debt-to-Income Ratio Threshold
Banks use the debt-to-income ratio to decide what to give you. To receive an FHA loan in Des Moines, you cannot have a debt-to-income ratio above 43%. The Iowa FHA loan program provides exceptions for debt-to-income ratios up to 56%.
The ratio compares your monthly debt payments to your monthly gross income. You can boost your monthly income through a side hustle or higher salary to improve your ratio. Similarly, paying off existing debts will assist on the debit side of the equation.
Improving this ratio will help you secure a mortgage.
Paying down debt will build your credit score, giving you access to better home loans in the process. The minimum credit score for an FHA mortgage loan in Iowa is 500. Homebuyers with a credit score between 500-579 must put 10% down for their FHA home loan.
Buying expensive items such as a new car will hurt your debt-to-income ratio. If you are deep into the home buying process, hold off on these types of purchases. They negatively affect your rate and loan amount.
Many FHA home loan programs will want documentation of your income and job history over the past two years. The FHA home loan program provides some exceptions to the job history requirements.
Plan for Private Mortgage Insurance
Getting approved for a mortgage loan will help you assess your financial options. FHA home loans carry lower interest rates and credit score requirements than conventional loans. However, FHA loans come with private mortgage insurance with fewer choices to stop paying.
Homebuyers must pay a monthly private mortgage insurance fee if their down payment is less than 20%. Most homebuyers get out of PMI after paying down 22% of their home. Unfortunately, FHA home loans are the exception to this rule.
The only two ways to stop paying PMI are paying monthly premiums for at least a decade or refinancing to a conventional home loan in the future.
You will pay less in premiums if you make a 10% down payment on the property. Some home buyers must complete 10% down payments on their FHA home loans, but it’s a good practice for anyone who can afford it.
Review Programs for First-Time Home Buyers Outside the Des Moines Area
Several states offer programs to incentivize first-time home buyers. The Minnesota Housing Startup loan program grants conventional loans with 3% down payments for example. The program provides low or no mortgage insurance premiums, making it more attractive than an FHA home loan.
Florida presents first-time homebuyers with multiple choices, as it offers down payment assistance programs to help fund home purchases in the state.
The FHA offers grant programs in each state to further funding assist for qualifying home buyers. The 1st Home Illinois program provides applicants with a $7,500 down payment assistance grant.
The FHA provides additional mortgage assistance choices in some states compared to others. While we could only find two FHA home loan grants in Tennessee, we found almost ten grants in Illinois.
If you expand your home search across several states, review each state’s programs for first-time homebuyers. These programs make housing more affordable for qualifying buyers.
The FHA’s Primary Residence Rule
The Iowa FHA Program requires the home you purchase becomes your primary residence. If you want a vacation home or investment property in Iowa, the FHA home loan is not your friend. Seek a conventional loan for this scenario.
You can use an FHA home loan to purchase a multifamily property if you live in one of the units. This strategy allows FHA home loan recipients to collect rent payments from their property.
The FHA home loan works best for those looking for a first home or people ready to move into Des Moines.
FHA home loan recipients must relocate to the home within 60 days and live there for at least one full year. After that year expires, you can move to a different property and use your current home as an investment property.
Apply for a Mortgage Loan Today in Des Moines
If you secure a home loan, Compass Mortgage will support you through closing. Your future Des Moines house awaits.
Would you like to apply for a mortgage? Compass Mortgage lets you easily apply for an FHA home loan so you can compare options. They provide personalized rates and assist with document uploads.