FHA loans in New Jersey
New Jersey is one of the smallest states in the US but the 11 th most densely populated. And is it any wonder when you consider its proximity to New York and the Atlantic coast as well as its wonderful array of amenities? Of course, a high population in a small space means competition for housing is going to be fierce. And as a result mortgages can be costly. That doesn’t mean anyone with a low income or a poor credit rating won’t ever be able to own a property in New Jersey, it just means that they might need a little help. The Federal Housing Association (FHA) is on hand to provide just that. Here’s how they do it.
What is an FHA loan?
As the name suggests a 30-year fixed-rate mortgage indicates the length of time your mortgage will take to repay as well as the type of interest you will be charged on the loan. In this case it is a fixed rate. This type of mortgage is one of the most popular types around. As property markets become more and more competitive in more densely populated areas, such as New Jersey, longer-term mortgages are becoming more attractive, so it is not uncommon to hear of people taking out 40 or even 50-year mortgages.
A fixed-rate mortgage is often a little more expensive over the longer-term than a variable-rate mortgage but it comes with the security of knowing exactly what the rate of interest you will be paying back for the foreseeable future will be.
What are the benefits of an FHA loan?
There are numerous advantages to taking out an FHA loan. Some of these include the fact that:
- It is an affordable alternative to traditional mortgages.
- Down payments can be as low as 3.5 per cent of the overall price of the property.
- A borrower’s credit rating can be as low as 580 and potentially lower if the borrower is able to make a higher down payment.
- An FHA loan is generally assumable, which means that if the borrower chooses to sell the property, the buyer “assumes” their loan.
Is it right for me?
An FHA loan is generally a low risk loan, but that doesn’t mean it is absolutely the right solution for your financial needs. Those who apply for FHA-backed loan tend to be younger people who are getting their first mortgage and are finding it difficult to meet the down payment requirements for most traditional mortgages. That doesn’t mean that everyone who applies is a first-time buyer. FHA loans can also be a good option for people with bad credit or those who are facing foreclosure and as a result might not be able to qualify for a normal loan. These loans don’t come without costs. The borrower will have to pay two different kinds of insurance premiums. One of these will be charged monthly. The fees are not exorbitant but must be factored into any long-term financial planning.
Another factor to be aware of is that once the application has begun the FHA will send out someone to appraise the property to ensure that it meets their minimum standards. If it falls short of these and the seller isn’t willing to make the changes themselves, it is possible the borrower will have to pay for repairs themself.
Am I eligible?
As these are government-backed loans designed for people who are struggling financially most people will be eligible as long as you can prove you have the means to pay the loan back. To do this you will have to prove that you have been earning a steady income for at least two years and are also currently in employment. You must also provide your lender with a valid Social Security number and be a lawful resident of the US.
If you are looking to get an FHA loan due to bad credit then you will need to be at least two years free of bankruptcy and three years out of foreclosure. Exceptions can be made in both these cases but that will have to be negotiated with the lender and prove of extenuating circumstances provided.
What if I have poor credit score?
A poor credit score should not instantly disqualify you from getting the loan. Credit scores can be as low as 580 with a 3.5 per cent down payment. If you are in a situation where your score is a little lower than that, then it is still possible to qualify for the loan, however your initial payment will need to be significantly higher at 10 per cent of the overall price of the property.
What is the lending limit?
Lending limits differ significantly depending on where you are applying for the loan. In New Jersey the limit is decided by county. They start at around $316,000 for a single in Atlantic County and can go as high as 1.2m for a four-plex in Morris County. The price of the property is the major factor in deciding how much you can borrow and, as mentioned, the property will have to be appraised by the FHA.
It is not just where you are buying that needs to be factored, but what you are buying as well. The type of property, as indicated above, will also have an impact on borrowing limits. So the amount available on three bed properties is higher than duplexes.
It is always a good idea to pre-qualify for a loan so you can get more of an idea about what the market is like and just what kind of property you will be able to afford.
Why choose SimpleFastMortgage.com
FHA loans are practical and affordable alternatives to the traditional mortgage. If you are thinking of taking one out you’ll need some advice. At SimpleFastMortgage.com we have decades of experience helping people find the right homes. We pride ourselves on our transparency and make sure we keep customers involved and informed in every step of the process. We’re here to make your dream home a reality. So please get in touch with any questions and we’ll do our best to answer any questions, no matter how trivial they might appear.