How Can I Lower My Homeowners Insurance?

by Mike Plambeck

Every homeowner who maintains a mortgage is required to keep a valid homeowners insurance policy on their property. Even once the financing portion of homeownership is finished, it’s still highly recommended that you keep a policy open to protect your most valuable asset. Many individuals lack the basic understanding of what this policy covers and how it connects to your overall mortgage. Once you understand this basic connection, you can find a number of savvy ways to lower homeowners insurance costs.

What is Homeowners Insurance?

A homeowners insurance policy is used to help protect your interest in the home. They typically cover major categories of harm such as interior damage, exterior damage, loss of belongings or assets (including theft), and bodily injury on the property. An insurance company will offer a certain degree of protection across these four categories in exchange for your monthly insurance premium.

When something goes awry, you may have to pay some money upfront to cover your deductible before the claim can be approved by the insurance company. The details of both the coverage and the deductible amount will vary based on the policy you select.

This simple home insurance policy is very important to help provide you with financial security in the event of a disaster. A storm, a freak accident, or a flooded home can happen in the blink of an eye. Without an insurance policy in place, the majority of people would lack the necessary funds to cover the cost of repair out of pocket.

The danger can be even greater if someone is injured on your property, whether they slip coming down the stairs or trip over a lawn gnome in your front yard. Insurance can help to cover the cost of the medical bills sustained as a result of the injury, preventing you from being sued. This provides some legal and financial protection in the rare event this ever occurs.

You can ultimately lower homeowners insurance costs by altering the degree of coverage for your home. With every change you make to the policy, you have an opportunity to save a few dollars on your monthly costs. Unfortunately, few homeowners realize just how much control they may have over the final price they pay for insurance.

How Does Insurance Relate to Your Mortgage?

It becomes even more unclear to homeowners who are still paying off their current mortgage. Until the home is officially your own, your monthly insurance premiums are usually covered by an escrow account set up by your lender. This means that your mortgage payment bundles in a certain amount to cover your insurance premiums along with your principal and interest payment. Your property taxes may be handled similarly.

If you fail to keep the policy active, the lender has the right to place a new policy over your property at an additional fee. You may end up paying more for one of these policies that offers a different degree of coverage than you would with some of these money-saving tips that can help you to save money on your own home insurance.

What You Can Do to Lower Homeowners Insurance

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Fortunately, you aren’t necessarily stuck paying the price that your insurance company quotes to you. There are many different attributes you can change on your plan to increase the value while simultaneously decreasing what you pay each month. It helps to determine just how much you can afford to pay out of pocket in the event of a disaster, as well as what you can afford monthly.

If you’ve been trying to figure out what you can do to lower homeowners insurance costs, take a look at these top suggestions for finding a better rate.

Shop Around Before You Buy

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The company you select for your homeowners insurance really does play a part in how much you will pay month to month. Much like car insurance, there are variations in price that are more related to the company than the policy itself. This can be time-consuming to compare quotes that are apples to apples but ultimately has the potential to pay huge dividends when it comes to your savings.

One suggestion for shopping at multiple companies is to enlist the help of an insurance agent. Many of your local agents may provide coverage through multiple companies. With their help, you can compare the prices of policies that offer comparable coverage under the watchful eye of a professional. The bonus is that you also have someone readily available to answer questions about small details you don’t understand.

Of course, money shouldn’t be the only thing you consider when looking at various homeowners insurance companies. You also need to think about how previous and current customers feel about their coverage.

Some insurance companies will try to find loopholes in your contract with them, transferring some of the financial responsibility back onto the homeowner. You may spend a lot of time filing claims and arguing with representatives in order to get the money you need to cover extensive damage that you believe is included in your comprehensive homeowners insurance plan.

This would be an excellent time to ask friends and family members if they are satisfied with their provider. Look for reviews online about the service they provided and how happy homeowners were regarding their claims resolutions.

Shopping for the perfect homeowners insurance company means looking for a reputable organization that charges fairly and has great success rates and recommendations from their clients. There has to be a balance between these items or you may be unsatisfied with the long-term repercussions of choosing this company.

Raise Your Deductible

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One of the fastest ways to lower homeowners insurance is to raise your deductible. Your deductible is the amount of money you will have to pay out of pocket before the insurance company will consider your claim. There is an inverse relationship between your deductible and the price of your insurance premium. Generally speaking, a lower deductible will mean a higher premium amount and vice versa.

Before you immediately raise your deductible to the maximum amount, you should consider whether you can truly afford it in the event of an emergency. Is a $10,000 deductible reasonable and could you cover that cost if you had a disaster strike your property? For many people, they need to select a deductible that is more in the middle and could be considered affordable based on their budget.

You can work up to raising your deductible to the maximum limits by setting aside a savings account with the total amount needed. This gives you some financial protection and security in knowing that you will be protected in these worst-case scenario situations.

Much like finding the perfect insurance company, finding the deductible that works for your family will require striking a balance between monthly savings and what you could afford to pay upfront if you need coverage.

Keep in mind that you may have different deductibles for separate aspects of potential damage to the property. For example, water damage may have a separate deductible than hail damage. It may pay bigger dividends to investigate all of these minor possibilities. Some experts estimate that raising your deductible by just $500 can save you 25 percent on your monthly homeowners insurance costs.

Disaster Proof Your House

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With a few simple home modifications, you could lower homeowners insurance and protect your investment all at the same time. Areas that are particularly prone to natural disasters such as hurricanes and tornadoes will want to consider making some key changes to the home in order to “disaster proof” it. This may include installing storm shutters and doors that are professionally placed on the home.

An insurance company could view this attempt at protecting your investment as a reason to lower your monthly costs. While these may be minor changes, they could mean that your home is less likely to be damaged in the event of a natural disaster. This is beneficial for you and the insurance company who will be less likely to see a claim coming from your property.

Keep in mind that most insurance companies are going to want proof that these were quality investments that were professionally installed before they offer a discount. You may need to provide them with product information, receipts, and photographic evidence that the work has been completed on the home.

If you’re in the process of purchasing a new home that has these features and you want to gather insurance quotes, you will need to mention that these items are available upfront. The insurance company has no way to identify their presence without your direct input. You may also ask them what kind of a discount you could receive on the policy if you were to make these changes. This can help you to evaluate whether you feel it is worth the investment.

Upgrade Home Security

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Common home insurance policies cover the property in the event of a theft or burglary as well as a physical disaster. Depending on the details of your plan, you may have a certain deductible to meet before they will cover the remaining assets that have gone missing. You may even choose to place coverage on specific items such as expensive electronics or equipment used for work.

If you’re taking steps to minimize the likelihood that a burglar would get away with your goods, an insurance company is likely to shave a few dollars off your monthly bill. This keeps your house safe and lessens their overall risk when it comes to insuring your property.

Similar to disaster-proofing your home, you will also want professional installation from a home security company. The insurance company might ask to see your contract or receipt from the installation. Keep in mind that they are looking for a system that does more than simply scare off the bad guys. They also want the system to automatically dial out to first responders whenever the alarm sounds.

Predicting how much money you can save by installing a professional home security system is difficult because each company has a unique policy. However, some insurance companies are willing to issue discounts of twenty percent simply for adding this feature.

Be sure to keep in mind that you will be offsetting the savings on your homeowners insurance policy with the additional cost of maintenance on the security system. This could be a great tradeoff that allows you to receive more peace of mind in your home for a reduced fee that can help to balance it out.

Seek Discounts

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Most homeowners insurance companies are willing to offer discounts to their clients, but you have to be willing to ask about them. Too many people are hesitant to discuss the intimate details of their finances. Money is such an uncomfortable topic that they simply accept the bottom line number that the company gives them.

They may not even realize that there is some room to negotiate inside of this figure.

Browse through the insurance company’s website to see if they offer an extensive list of potential discounts that they’re willing to give out to their customers. This can give you a great starting point for contacting a customer service representative to see how to go about making use of them. For example, many companies will issue discounts based on common things like these:

• Long-standing customer with the company
• Bundled policies
• Home remodels
• Auto-pay enrollment
• Discounts for time without claims
• Retiree discounts

Companies are willing to give out these discounts, but only customers who are bold enough to ask will receive them. They are very rarely applied to your insurance policy automatically, so don’t forget to speak up and ask if any of these common discounts are offered. After all, some of them could save you up to thirty percent on your monthly homeowners insurance premium.

Make a list of the potential discounts that you believe you could be eligible for. It’s also helpful to get a few quotes from other insurance companies to see if your company can offer a discount or match their rates on a comparable policy.

Get a Better Credit Score

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If you live in a state that allows insurance companies to use your credit score, you may face higher premiums for bad credit. The logic behind this concept makes sense, but few homeowners take the time to truly consider what a low credit score is costing them. Insurance companies have their own scoring system that uses your credit score, A lower insurance credit score generally results in lower homeowner’s insurance rates.

Insurance companies are more apt to raise the rates for a person who may not be consistently reliable at paying their monthly premium. Poor credit tends to be an indicator that you don’t have a favorable long-term history of making timely payments, so the insurance company attempts to minimize their risk by insuring your property at a much higher rate.

The best thing you can do to lower your homeowners insurance rates would be to raise your credit score.

This money-saving technique does require a long-term commitment to working on your financial health, but it pays big dividends in every area of your life. You will almost definitely qualify for better interest rates, better terms on credit cards, and more favorable loan programs when you have a better credit score. All it takes is a commitment to managing your money well on a monthly basis.

For most individuals, the biggest struggle they face with their credit score is making their monthly payments on time. Set up an autopay function on your accounts whenever possible and set an alarm on your phone to remind you to pay the others. This prevents the due date from passing you by, creating yet another blemish on your credit report.

Credit utilization also plays a role in determining your final credit score. Most experts recommend using only thirty percent of your available credit at any given time. If you have excessive debt, you can actually improve your credit score and your finances by paying off some of those high-interest credit cards, student loans, and auto loans.

If you know that you’ve had a major overhaul of your credit score over the past couple of years, you may want to consider reaching out to your insurance company to see if they will think about lowering your rates. They may just reward you for your hard work and put you in an even better spot financially.

Bundle Insurance

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Most companies offer more than one type of insurance. They probably also provide car insurance, RV insurance, motorcycle insurance, and other types of coverage that you may need. One of the easiest ways to receive a discount on your homeowners insurance is to bundle all of your insurance policies in one place.

Insurance companies make more money when they receive more of your business and keep it out of the hands of their competitors. In exchange for your business, they are often willing to pass along significant discounts that can save you in every area. This also makes it more convenient for you to pay your bills if they are all due in one easy location.

Be aware that there could be a major pitfall to bundling your policies under one carrier, particularly if you’re considering switching your car coverage. If you have a long driving record full of tickets and accidents, your carrier may drop both your auto insurance and homeowners insurance all at the same time.

Research the companies and ask to receive price quotes separately to see the breakdown of what each policy will cost you. It may still be less expensive for you to keep your policies under two separate companies that offer fantastic rates instead of bundling them. In the end, it’s possible that you may pay more for the bundle so make sure to do your homework.

As with most discounts, the specific amount that you will save is based on your location and the details of your coverage. However, it’s estimated that you could save between ten and twenty percent when bundling policies together.

Eliminate Unnecessary Coverage

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As time passes, you may not necessarily need the same amount of coverage you signed up for when you first purchased your home. Eliminate coverage that is no longer pertinent to your property, including any major changes regarding valuables within the home. This may be particularly true for families who downsized in recent years or parted ways with many of their more expensive gadgets.

However, it could also mean that you change the type of coverage on your house. For example, that tree in the front yard that loomed ominously when you first moved in may have been cut down last year. This would reduce the amount of coverage you feel is truly necessary in order to replace or rebuild your home.

The key to eliminating unnecessary coverage is to be thorough in what it would cost to rebuild and re-furnish your home. No matter what, your coverage should always cover the complete cost to rebuild the entire structure and replace everything that was inside. This saves you from massive out of pocket costs in the event that a disaster does occur on your property.

It also helps to make a home inventory during this stage. This document outlines all of the major items that are within the home, as well as their value. Be sure to include photos of each item as proof that it was in the home. This is key to ensuring that you have enough money to replace all of the items you care about most if disaster strikes.

It’s a good idea to reevaluate your degree of coverage at least once each year. You want to be careful not to over-insure the property because you will ultimately pay for this amount, even though it will yield few results. Stolen goods will be replaced at their actual value, even if they happened to be “valued” in your eyes much higher.

The same goes for damages done to the property. You may have your home covered for up to $200,000 in rebuilding costs, but it could cost just $150,000 to actually rebuild. Unfortunately, the insurance company is only going to cover the real cost to rebuild. The excess funds are simply a reason to charge customers more for their premiums on a monthly basis. You could be paying twenty percent more each month for no additional benefit or protection if you have overvalued the property.

Talk with your insurance agent to see what degree of coverage you currently have. This may answer any questions you have regarding what level of coverage you could drop to in order to save a substantial amount on your monthly premium.

Remove Old Structures

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Do you have an abandoned detached garage in the backyard or a barn that’s seen better days? Even if you’ve never used these structures, you may still be paying to cover them under the umbrella of your homeowners insurance policy. Removing them from the property could save you a significant amount on your insurance premiums.

Because these structures are located on the property, there is still a risk that someone may be injured in or around the buildings. This philosophy could be particularly true if the buildings are dilapidated and run-down. They could collapse suddenly or have bits and pieces falling off that harm passersby. Taking them down lowers the overall safety risk to your property and can lower homeowners insurance costs as well.

If you aren’t using these buildings and have no intention of doing so, removing them should be relatively simple. Be sure to take before and after pictures to demonstrate just what work was done to the property in order to justify your request for a reduced homeowners insurance rate.

Be careful to ensure that you follow all of the local rules, codes, and regulations when it comes to dismantling a building on your property. You want to ensure that you do everything properly if you hope to receive a price break on your insurance costs.

Exclude Land Value

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Some homes come with a large plot of land in addition to your actual house. Depending on the circumstances or the layout of the property, the land value may also be covered by your homeowners insurance. You might not even be aware that this trivial detail has slipped into your coverage unless you specifically ask.

You could consider removing the value of your land from the insurance policy. After all, you’re more likely to use the insurance policy to cover the cost of rebuilding or replacing your home in the event of a disaster than you are to use it for repairing the land itself. Some companies may allow you to keep bodily injury protection on the land without covering it for damages.

Talk with your insurance agent or customer service representative to see just what is covered under your policy in regards to land values. This may be an easy way for you lower your coverage and save money quickly on your monthly expenditures. Just be certain that you can afford to take care of the land if you would need to in the event of a disaster.

Clean Up the Land

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You might have noticed that there were a few trees that needed to be cleaned up on the property when you first purchased it. That mighty oak in the front yard was attractive when you first moved into the home, but now its limbs are stretching dangerously over the roof. An insurance inspector who views the property may look at all of the limbs and debris as a hazard, forcing them to raise your homeowners insurance rates as a result.

Try combating these price increases by cleaning up the land around the house. This not only improves the curb appeal of your home, but it also makes the home safer and could boost the market value if you ever look to sell the property.

Removing major risks to the structural integrity of your property is important, but it could be essential in locations prone to fire. Dry areas that see many wildfires throughout the year should view cleaning up the land as completely necessary, apart from any potential discounts on homeowners insurance they could receive. You will have many benefits from this simple task and it can pay dividends in the years to come.

Take some before and after pictures to demonstrate the level of work that went into improving the quality of the land around the property. This can also help you to prove that the modifications will help your home to remain intact for longer periods of time into the future. Be sure to write down your justification for why these changes should warrant a reduction in your premium amount for home insurance.

Ensure that you are following local codes and ordinances to have any trees, structures, or limbs removed from the property. This could be essential, particularly if you are removing certain types of trees. Fines may be forthcoming if it isn’t done according to the local standards.

Dog Breeds Can Matter

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Unfortunately, the type of dog you own can definitely influence the overall amount of your monthly insurance premium. Some companies maintain a long list of breeds that have been commonly and historically known for their aggressive tendencies. Homeowners who consider their furry friends a part of the family may face higher premiums as a result.

Depending on the company and the specific breed of dog, you might even have a difficult time finding an insurance company that will allow it. Animals are often viewed as unpredictable because they can run off or bite someone at any given time. Dog breeds that seem more susceptible to act on an impulsive desire to bite a stranger will cost you more on your insurance because it covers bodily injury on your property.

Muscular dog breeds tend to be more likely to fall under the list of “aggressive breeds” because their attacks could potentially inflict more damage. There isn’t an official list that all companies will refer to, but many of these common breeds will hike up your premiums:

• Pit bulls
• Dobermans
• German Shepherds
• Chow Chows
• Boxers

While most people know that not all of these breeds are harmful or aggressive, the stigma is still there and it can cost you. A more “docile” breed is less likely to cause a price increase. Cats are less susceptible to face the same stigma as larger dogs known for their size and aggression.

Not all pets will raise your insurance premiums, but it is worth checking with your company before you purchase a new pet for your family.

You will want to ensure that your pet is covered by the policy in case something unpredictable happens on your property. This means being forthcoming with veterinary records and documentation about what type of dog is living in your home. This should be a real and serious consideration before you make a purchase, as some companies will refuse to provide service to homeowners with certain breeds.

When it comes to more exotic pets, check with your agent to see if they are covered. Snakes, monkeys, and some other types of animals may be considered dangerous to visitors and won’t be covered under the policy. This also means that any injuries they inflict on guests or visitors won’t be covered under the policy.

Conclusion

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Saving money on your homeowners insurance can be simple when you know what to expect and how to ask for the right discounts. Maintaining coverage of your most valuable assets is absolutely essential to giving yourself peace of mind and protecting your financial future, even beyond the point where your mortgage company will require this coverage.

Consider what steps you can take today to start asking for a reduction in your homeowners insurance policy. You may decide to do a little remodeling, install the security system you’ve been wanting for years, or hold off on purchasing that new pit bull puppy. Sometimes, the small things that you do around the home can yield the largest payoff when it comes to your overall savings.

Make a list of the steps that you can take before you talk with your homeowners insurance company about any possible discounts you may eligible for.

FAQs

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What are typical homeowners insurance rates?

The typical homeowners insurance rates will vary based on your state and the type of coverage you have on your property. The average across the nation usually measures at approximately $1,000 per year, but it typically ranges anywhere from $300 to $1,500 annually. You may be able to more accurately calculate the total by dividing your home value by 1,000 and multiplying the result by $3.50.

What is a homeowners insurance premium?

Your homeowners insurance premium is the amount of money you pay monthly or annually in exchange for the insurance company providing coverage in the event of a disaster to your property. The specific details of the coverage will vary, as will your insurance premiums.

What should my deductible be for my home insurance?

Your deductible should be set at the amount you are able to and willing to pay upfront out of pocket in the event of a disaster. This will vary for each homeowner. Some may be comfortable paying a common deductible amount, such as $500 or $1,000. However, you may save up to 25 percent on your homeowner insurance by opting for higher deductibles between $2,500 and $10,000.

Do home insurance rates go up after a claim?

Yes, insurance rates will typically go up after a claim is made. It is estimated that they rise approximately ten percent after the first claim and twenty percent following the second claim. This is why some homeowners will choose to pay the total cost of a small repair out of pocket instead of filing it with their homeowners insurance company.

What does homeowner insurance cost?

Homeowner insurance costs will vary across the nation, but many premiums range from $300 tp $1,500 depending on your coverage, location, and insurance company.

Is homeowner insurance negotiable?

There is some flexibility in the rates provided by insurance companies for homeowner coverage. You may be able to negotiate a lower rate by making improvements to your home and property, changing the coverage, or bundling your insurance policies together under one company.

What home insurance discounts should I ask for?

Many companies will offer common discounts including:

Why is my homeowners insurance so high?

The cost of homeowners insurance will vary based on the specific details of your policy and the location of your home. Your policy may be high because you have had many claims over the years, have a low deductible plan, or are insuring your property for more than it’s worth. The value of your home will also play a role in raising your homeowners insurance rates.

How much does a security system save on homeowners insurance?

The specific discount afforded to homeowners for a security system will vary based on your policy, state, and the insurance company. You may save up to twenty percent with this change. Keep in mind that you will have the additional cost of paying to maintain the security system on a monthly basis as well.

How much is homeowners insurance?

Homeowners insurance varies based on your coverage, the policy details, your insurance company, and the state in which your property is located. The average homeowners insurance premium in the country is around $1,000 but rates typically fall between $300 and $1,500.

A rule of thumb for estimating costs is to divide the value of the home by 1,000 and then multiply by $3.50. This should give you a rough idea of what you can reasonably expect to pay for insurance.

Resources

Homeowners Insurance and Such: What You Forgot to Think About
U.S. Homeowners: Tax Benefits and Deductions for You!
12 Ways to Lower Your Homeowners Insurance
How To Lower Your Homeowners Insurance Premium
18 Ways to Lower Your Homeowners Insurance Premiums
10 Ways You Can Lower Your Homeowners Insurance Premium (U.S. News & World Report, 8/31/2016)
Homeowners Insurance Buying Guide – Consumer Reports
10 Hidden Home Insurance Credits
Your Government Helps You Find Lower Auto & Home Insurance Rate

FHA Loans: The Loan First-Time Home Buyers Love

by Mike Plambeck

FHA Loans

Federal Housing Administration insures FHA Home Loans mortgages. It has lower underwriting standards, low rates as compared to the conventional ones and low down payment rates of 3.5%. In addition, FHA borrowers are saved by mortgage insurance, which is a must to be paid, in case they default.

FHA Loans: Flexible and within reach

First-time as well as repeat buyers like to get a home with low or no down payment at all. In this scenario FHA loan remains the best choice. Out of every five US buyers, one chooses FHA loan.

In part, FHA loan is popular because it requires just 3.5 % down payment. Moreover, FHA mortgage rates are lower as compared with others, and a subsequent buyer can also have this loan. It also has flexible underwriting standards. And this is really attractive especially when you have high mortgage rates in the competitive market.

We Will Help You Qualify for An FHA Loan – Click Here To Pre Qualify Today.

An overview of FHA mortgage

During The Great Depression when the US was going through a period of ‘heavy renting’, Federal Housing Administration was established in 1934. At that time 4 out of 10 owned a house. Moreover, mortgage terms were nearly impossible to meet up with. 50% down payment, agreement on a loan term of 5 years or less and also a hefty sum to be paid to the bank after a first few years spent with the mortgage. Not everyone was able to meet up with such mortgage conditions in 1930s.

During the same era, the US government devised a plan to ensure that maximum people have their own homes. Government officials argued that it will stabilize neighborhood and help US economy thrive. So FHA and its mortgage program were established.

A prominent feature with the FHA mortgage was Mortgage Insurance Premium (MIP) program. Under this program, FHA insured lenders if they faced default situation.

To get FHA’s insurance on their loans, banks needed to verify whether the loans met FHA’s minimum qualification standards also known as FHA mortgage guidelines.

FHA MIP program boosted up confidence of banks and in turn they provided US home buyers better loans. As a result, first down payment requirements plummeted then the 5 year loan term was abandoned and replaced by more flexible terms of 15 to 30 years. Mortgage rates also dropped.

At present, FHA remains the biggest mortgage insurer in the world.

FHA Loans – The choice of US home buyers

US home buyers now have a diverse range of loans available. Fannie Mae and Freddie Mac provide conventional loans, USDA provides Rural Housing Loans and Department of Veterans Affairs provides 100% loans.

Still the top choice with US home buyers remains the FHA loan. Its low mortgage rates, lesser down payment and easy lending guidelines make it the top choice of home buyers.

Let’s look at some of the benefits of an FHA loan.

Mortgage Insurance Premium (MIP) Program

FHA MIP is an important part of FHA mortgage. That’s the reason most people choose to seek FHA-insured loans.

Now news to be cheered about is that FHA MIP rates are 50 basis points per annum that is 0.50% lower as compared to the rates in 2014.

There are other benefits. You can reduce what you will annually owe in FHA Mortgage Insurance Premium Program wither using a 15 year mortgage plan against your FHA loan or increasing down payment to 5 percent. There is a more common option: refinance yourself out of MIP program.

Down payment as low as 3.5 % with FHA loan

Home buyers now-a-days have limited mortgage options to choose that offer down payment of 5 % or less. FHA offers the same.

Home-buyers can make just 3.5 % down payment with FHA loans. This is a huge encouragement for those people who don’t have enough savings to make heavy down payments or they have set aside some amount to pay for moving costs or emergency funds.

100% gift funds for down payments

This is an offer not usually given by most mortgages. But FHA provides you an opportunity to make full down payment for your house from a gift. It is quite flexible with gift funds.

It means if you need to make 3.5 % down payment from a gift by your employer, parents, a government home-buyer or some charitable group, FHA mortgage allows that. Of course, there is some due process to follow.

No social security number required

It becomes a problem with other mortgages if you don’t have a valid social security number. But if you are applying for an FHA loan, it’s fine. They don’t need it. FHA is flexible enough to permit loans for non-permanent residents, staff of foreign embassies and employees of World Bank.

With FHA loans high DTI is not a problem

High debt-to-income ratio is for sure a problem if you are tackling with mortgages, but it is not the case with FHA.

Debt-to-income ratio is usually calculated by comparison of two things: buyer’s debt services and pre-tax income. For example, if a buyer has monthly earnings of around $5,000. Out of which debt payments stand at $2,000. Then DTI will be 40%.

Mortgages such as Fannie Mae and Freddie Mac allow 36 % to 43 % DTI ratios. Under 25% down payments Fannie Mac relaxes DTI to 43 % for FICOs at 700 or above.

As reported by Ellie Mae, a mortgage software company, average DTI for closed conventional purchases remained 34 %.

Average DTI for closed purchases of FHA loans remained 41 %. FHA relaxes DTI to 50%. But to compensate for this high ratio, you will need to have great credit score, down payment above from the minimum required and hefty savings.

There are a number of FHA-approved lenders

This is also a plus. Any FHA-approved lender can fund your loan. The list contains credit unions, mortgage lenders and savings-and-loans institutions. Perhaps its reason is that FHA loans have a huge market share. It helps create a competitive environment, and as a result lenders are offered low FHA rates to attract maximum people.

So, it is easy to have your loan through negotiations. If one bank rejects your loan, the other approves it.

A number of FHA loan products

You can have a mortgage of any type. There are 30-year fixed rate mortgages, 15-year fixed rate mortgages and a number of adjustable-rate mortgages (ARMs).

FHA also offers purchase-and-improvement loans. This loan is for buyers who want to buy a home that is in need of reparation. Construction loans through 203k program for people who want a newly-built house. There are energy-efficiency loans in case you need to finance your energy-efficiency needs.

There is also a series of FHA refinance loan products.

Most property types are insured by FHA

With FHA loan you can buy any type of home in any locality in the US. It doesn’t matter if you are looking for a neighborhood in any of the 50 states, any US territory or the District of Columbia.

FHA offers insurance on 4-unit homes, 3-unit homes, 2-unit homes, single family detached homes, mobile homes, condominiums and manufactured homes.

With FHA loans don’t worry if you have lower credit scores

Other conventional lenders impose high FICOs. Fannie Mae and Freddie Mac boast that they accept FICOs as low as 620 but these agencies are just the creator of guidelines on the basis of which mortgages are issued by lenders. When case reaches banks and mortgages companies, they add their own rules, dubbed as overlays, into the deal.

A recent report by a loan software company Ellie Mae showed that an average home-purchase with Fannie and Freddie stood at 754.

The same report revealed that FHA closed purchases required average FICO of 686 that was 60 points lower than the above mentioned.

Ellie Mae further reveals that around 37 % of FHA loans are adjusted with 650-699 FICO. Another 24% secure approvals with 650-649 FICO. While majority of Fannie and Freddie approvals are finalized within the range of 700-749 FICO which is 100 points higher than that of FHA’s.

It is recommended that you maintain your credit score at a high position. But people who suffer from bad FICO because of financial mistakes of the past can now easily get approved for a home with bad credit without waiting for their credit score to be restored.

You can obtain an FHA loan with no credit score

Yes, FHA provides this facility. Housing and Urban Development department restricts FHA from depriving any applicant from mortgage just on the basis of no credit history.

It allows home-buyers to create a non-traditional credit that may replace standard credit history. It is helpful for people who lack credit history.

Payment histories of borrowers on phone bills, apartment rent utility bills and car insurance bills can be used to create a non-traditional credit.

With FHA you can have extended loan sizes

A loan limit can be defined as the maximum permissible loan for a certain area. Just like conventional loans, FHA loan limits can be extended. For example, you can get insurance up to $ 625,500 in Orange County, California.

Loan limits increase up to $1,202,925 for 4-unit, 3-unit and 2-unit homes.

FHA Loans can be assumed

This facility is not usually offered by conventional loans. It means that if a person purchases a house with FHA-insured loan and plans to sell it later when the interest rates have shot up, he can still be able to offer a buyer the right to assume the low-rate at which he had purchased it.

FHA also offers construction loans

FHA offers construction loans under the banner of its FHA 203k loan offer.  These loans are accessible to buyers who need upgrades to their new home. It is also for homeowners who are seeking to repair their existing home.

Projects under this loan include structural additions, new roofing and also complete tear-down of a home. This loan can be used for minute reparation and fixer-uppers.

Get an FHA loan if you want to be a landlord

FHA offers you to buy rental property by making 3.5 % down payment. Your selected property should be multi-unit. For example it should be a duplex, triplex or fourplex. You should make one unit as your residence putting the other units on rent. The rent taken from the other units will compensate partially or fully the mortgage payment.

You can have investment homes at 15 % down rate if you have robust credit, assets and income.

This scheme can make you a landlord with lower risk while providing you potential benefits.

With FHA loans you can have high loan amounts

FHA loan limits range from $275,665 to $636,150 for one-family residences. These limits for FHA are set by Metropolitan Statistical Area or county. Apart from other states, limits for Alaska, Hawaii , Guam and the US Virgin Islands are higher.

Is there an alternative to FHA loans?

Many government-backed and non-government options are there with flexible underwriting and manageable down payments. These options include Fannie Mae HomePath (now called HomeReady) and Freddie Mac HomePossible mortgages. USDA mortgages, non-conforming loans and VA loans also are other options.

These alternatives have limitations. VA mortgages are only for eligible and veteran applicants while USDA loans are not without income restrictions. Moreover the latter is available only for thickly populated areas.

Conforming and conventional loans also demand higher credit scores. It is always a smart thing on part of home buyers to compare various mortgage programs before taking final decision.

You will have access to FHA streamline refinance loans

The FHA Streamline refinance is an exclusive program that offers buyers a quick way to refinance. No credit score checks, no verification of income and also home appraisals are waived. Additionally homeowners who have a mortgage pre-dating June 2009 have access to reduced FHA mortgage insurance rates.

Frequently Asked Questions

What is an FHA first time home buyer loan?

An FHA loan is a mortgage that is offered by private lenders and backed by the Federal Housing Administration. It features a low down payment, low interest rates, and a lower minimum credit score.

What are the FHA first time home buyer benefits?

The most significant FHA first time home buyer benefits are the reduced down payment (only 3.5 percent for individuals with a credit score of 580 or higher) and the lower credit score requirements. They are particularly great for first time buyers because they do not actually require credit at all.

What do first time home buyers get?

First time home buyers get more flexible requirements and significant savings on their down payment and interest rates.

Who qualifies for first time home buyer programs?

Anyone who has never owned a home or has not owned a home in the last three years qualifies for first time home buyer programs.

How do you qualify for an FHA loan?

You need to have the following criteria to qualify for an FHA loan for first-time buyers:

• Credit score of 500 or higher
• Minimum down payment of 3.5 percent to ten percent of the purchase price
• Steady employment history for approximately two years
• Debt to income ratio of 43 percent or less
• A property that passes the FHA appraisal

Borrower eligibility is still subject to lender approval, but these are the minimum requirements in order to qualify for the loan.

Does the government issue the FHA loan for first time buyers?

No, the FHA mortgage will only be issued by private lenders.

Do you have to be a first-time home buyer to receive the FHA loan?

No, you do not have to be a first time home buyer to receive the FHA loan.

What is the first time home buyer credit score required?

The minimum credit score required for an FHA loan is 500, but you will still be subject to lender approval.

Read about additional FHA Loan Requirements here.