Home ownership advantages

Home ownership is still one of the best investments you can make: besides helping build equity in your property, there are many expenses eligible for tax deductions by homeowners that aren’t available to renters. Buying is normally cheaper than renting, especially when considering the following tax advantages:

• Mortgage interest deductions –there are still deductions (and savings) available on most residential mortgage interest. For other types of properties, consult your tax advisor.
• Property taxes – real estate property taxes on a primary residence
• Closing costs deductions – mortgage loan origination fees (also called “points”) which are classified as a deductible expense.
• Home equity lines of credit – in addition to whatever interest you pay on a loan, interest on a home equity loan /line of credit can be another deductible.

Many people with less-than-stellar credit or who are in a lower income bracket may have been told by other conventional lenders that home ownership is out of reach. With an FHA-insured loan, you might be able to find new sources of financial help to make home ownership dreams a reality.

What are the FHA mortgage loan programs and how do they work?

The FHA (Federal Housing Administration, now a part of HUD (Housing and Urban Development and Urban Development) are federal agencies that have helped lower-income and first-time buyers with loans since 1934, by insuring loans through participating approved banks, so your lender can offer better terms for you.

Some of the FHA loan products available include:

• Basic Home Mortgage 203(b)
• Rehab Mortgage 203(k)
• Construction to Permanent (CP) Loan

One thing to keep in mind is that there are certain restrictions such as loan limits not usually required with conventional mortgage loans. Since these vary from county to county, your local FHA office can advise you about applicable loimits. In 2020, FHA’s loan limits range from $331,760 to $765,600.  The subject property must also meet strict health and safety standards, with no “jumbo” loans exceeding the area’s conforming limits.

How much home mortgage can you afford?

• Your local FHA counselors can help you determine this as it depends on a number of factors, especially your credit score as well as interest rates, income, current monthly expenses and the amount needed for a down payment.
• A lower score means you’ll need a down payment of at least 10 percent, but  an FHA counselor can help guide you through the process of understanding and qualifying for the mortgage loan options offered through the FHA.
• Down payments can be as low as 3.5 percent (for those with a 580 credit score or higher) of your purchase price for properties of one to four units, as well as manufactured housing and mobile homes.
• If you need help with a down payment, FHA programs which can offer down-payment assistance are a good choice for first-time buyers.

How do you qualify and apply for an FHA loan?

When you make an appointment with your FHA office, you’ll probably be asked about the following:

• Proof of income such as pay stubs, tax returns as well as bank statements for at least the past 30 days  
• Proof of citizenship, including a Social Security number
• A minimum credit score of 580 to qualify for the 3.5 percent down payment; between 500 and 579  means you’ll need to have a higher down payment
• FHA’s debt-to-income ratio i maximum is 50 percent, considerably higher than conventional lenders

Contact your local office to learn more – HUD and FHA help is out there to make your new home a reality.