First-Time Home Buyer FHA Loans – Redfin

The Federal Housing Administration (FHA) knows how hard it can be to finance your first home purchase, so they’ve made the process a whole lot easier with first-time home loans. Learn all about qualifying and applying for a first-time home buyer loan through the FHA.

Is an FHA loan right for you?

An FHA Loan is a mortgage loan from a traditional lender that is insured by the Federal Housing Administration (FHA). The government backs these loans to encourage lenders to be less strict on whom they extend loans to, ultimately helping more new and lower-income buyers achieve home ownership. FHA first-time home loans are typically easier to qualify for than conventional loans, but there are more restrictions on how they can be used.

How to Qualify for a First-Time FHA Loan

Unlike conventional home loans, FHA first-time home loans are more forgiving when it comes to having less-than-perfect credit and debt issues.

Down Payment

You need to pay 3.5% of the home sale price as a down payment, compared to the 5%–20% required with conventional home loans.

Credit History

You need at least two lines of credit, or an adequate substitute. Your credit lines must show a regular pattern of good payment, excluding isolated periods of financial crisis such as bankruptcy.


Having minor debt does not disqualify you, but you won’t qualify for a loan if you have delinquent federal debt such as student loans.

Debt-to-Income Ratio

The FHA looks at what your overall debt will be after purchasing your home, and has boundaries for what your future debt-to-income ratio can be. 31% is the max ratio allowed for your mortgage payment divided by your monthly income. 43% is the max ratio allowed for your mortgage payment and all recurring debt payments divided by your monthly income.

All FHA Loans require you to pay a one-time mortgage insurance payment, which is 1.75% of the base loan amount, in addition to recurring monthly mortgage insurance payments. Remember to factor this into your calculations!

What is mortgage insurance?

Mortgage insurance is included as part of your monthly loan payment. In exchange for a lower down-payment requirement, FHA loans ask for two mortgage insurance payments: an up-front mortgage insurance fee and a monthly mortgage insurance premium. The upfront fee is a one-time payment and is typically paid at closing. In addition, you will pay a monthly mortgage insurance premium until you pay down roughly 20% of the loan.


A bankruptcy on your record doesn’t automatically disqualify you from a first-time home loan. You can apply for a loan after Chapter 13 bankruptcy if you can explain your financial situation, get a letter of approval from the court, pay your bankruptcy off for a year, and prove your job stability. You’re eligible after Chapter 7 bankruptcy if you can explain your financial situation, pay your bankruptcy off for 2 years, and can prove your job stability.

How to Apply for a First-Time FHA Loan

Once have found the FHA-approved home for you, it’s time to apply for your loan!

1. Find an FHA-approved lender.

Not all institutions are insured to give FHA loans. In order to get a first-time home loan, you’ll need to find an FHA-approved local lender. Consult Redfin Open Book to find recommended local lenders.

2. Provide the necessary documents.

In order to apply, you will need to give your lender the following documents:

  • Social security number
  • Credit report
  • Your address from the past two years
  • Work pay stubs and W-2 forms from the past two years
  • Names and location of your employers from the past two years
  • Personal tax returns from the past two years
  • Gross monthly salary (before taxes)
  • Checking and savings account information
  • Pertinent open loan information, like car payments and student loans
  • Approximate value of all personal property
  • Property purchase agreement
  • Certificate of Eligibility and DD-214 (if a veteran)
  • Current income statement and business balance sheet (if self-employed)

3. Provide a down-payment.

To obtain an FHA loan, you will need to pay at least 3.5% of the home price at closing as your down payment.

Using an FHA Loan

To obtain an FHA loan, you will need to pay at least 3.5% of the home price at closing as your down payment.

Lending Limits

The FHA takes into account how home prices vary by region when setting their lending limits, so the amount of money you can borrow varies by state and county. To see how much is available in your area, consult the FHA Loan Guidelines.

Home Standards

Since the FHA wants to make sure you’re making the best investment possible, the home you purchase must meet certain health and safety requirements. These standards can often limit your home search more than you think. For more information on why some homes may not be FHA approved, contact a Redfin Agent in your area.

Seller Perceptions

Because FHA loans come with strings attached, they can be viewed as less desirable by home sellers. If a home receives multiple offers, sellers will often choose the one that is backed by conventional financing. If you’re trying to buy a home in a competitive market, that can definitely put you at a disadvantage. Be sure to talk about this with your agent to come up with the best offer strategy.

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