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First Time Homebuyer Requirement

November 12th, 2014 by [shareaholic app="share_buttons" id="27157108"]
One of the common misconceptions about FHA home loans is that you MUST be a first-time home buyer in order to qualify for one. This is not true. You may have state or local homebuyer assistance programs in your area that do require the applicant for that program to be a first time buyer, but FHA loans are open to all qualified applicants.

The real issue in this reader question has more to do with debt-to-income ratios (DTIs) will the FHA lender approve a buyer who already owns a home? Absolutely. I have done loans for clients that not only own another home, but one client that had 9 rental properties and an FHA loan was the better choice between a conventional loan and an FHA loan when the family was buying a new home to move into.

Single-family new purchase FHA home loans are for primary residences. The borrower MUST use the property bought with an FHA guaranteed mortgage as the main address. This particular reader question addresses that issue, so there isn’t a problem on that front. But the FHA does look carefully at a borrower’s debt-to-income ratio. If the existing mortgage PLUS the new mortgage on a potential FHA mortgage exceeds the FHA DTI the loan may be denied unless there are compensating factors.
How does the FHA view DTI?

The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.”

Again, these standards MAY be flexible IF the borrower has compensating factors including addition income, substantial cash reserves or other collateral. Borrowers should discuss their individual circumstances carefully with a lender before deciding what to do about a new FHA mortgage if they are concerned that their current DTI may be too high. Don’t assume you cannot apply for an FHA mortgage–talk it over with a lender to learn what your options may be.

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