FHA loans are an ideal choice for first-time home buyers who may not qualify for conventional mortgages. They feature more relaxed credit score requirements and allow borrowers to put as little as 3.5% down on their homes.
How Can I Qualify for an FHA Loan?
An FHA-approved lender will review your credit and income to determine if you can afford the monthly payments. They’ll also check to see if there are any defaulted federal debts on your report that would disqualify you from getting an FHA loan. If there are many negative marks on your record, an FHA-approved lender may be able to help clear things up using the government’s CAIVRS system to eliminate these items.
Down Payment Funds:
For an FHA loan, the minimum down payment required is 3.5% of the purchase price; however, this can be reduced to 10% with a credit score of at least 580. You may use funds from savings or investments, grants or donations, workplace initiatives and savings/investments to cover part or all of your down payment cost.
DTI Ratio:
Your mortgage payment, including an FHA-insured mortgage, should not exceed 31% of your gross monthly income. If this figure is too high, you could potentially be denied a loan.
Down Payment Source:
To prove the source of your down payment, submit two months’ worth of bank statements or a letter from a financial institution stating where it came from. Your down payment could come from savings/investments, donations/grants and work-related initiatives such as employer matching programs for employee down payments on new properties.
When Purchasing a Home With an FHA Loan:
To guarantee you receive the best deal on your new home, compare prices from several lenders. Doing this will enable you to identify who offers the most competitive FHA rates and terms.
Closing Costs:
An FHA mortgage typically includes closing costs, which can range from 2% to 6% of the total amount borrowed. These fees cover appraisal fees, title insurance, inspections and other related expenses. If you’re worried about paying these expenses in full, consider a loan with a longer closing period and lower interest rate.
Obtaining an FHA Loan:
The federal government established the Federal Housing Administration to offer renters a secure, affordable way to buy homes. Over time, however, this program was expanded to provide more lending options and reduce down payments from 5% to 3.5%.
Due to historically low home prices, borrowers with FHA-insured mortgages have little risk of loss when their properties value drops. They can apply for loan modifications or short sales and the lender will cover any losses;
The FHA program is a major contributor to the US economy, providing building supplies, job growth and tax bases. While it has its drawbacks, its flexibility provides people with an opportunity at homeownership who otherwise might not have one.
