Understanding the requirements of an FHA Loan - Mortgage 101
Most first time home buyers are taking the most common approach: the typical bank loan, without considering other choices. However, if you take the time to research your options, you’ll be surprised to see that there are plenty of choices when it comes to mortgage products. The FHA loans (Federal Housing Administration loans) are popular with mortgage borrowers.
No matter if you are a first time home buyer planning to purchase a place where you can raise your children or you are just searching for that dream house which will allow you to extend your ski vacation, the process of buying a house can be overwhelming. The most difficult part for most of us is assessing the financing options
There is only one limitation: an FHA loan is only for primary residences.; meaning that the borrower will have to occupy it the majority of the calendar year.
An FHA loan features several advantages such as:
FHA loan/FHA Mortgage/first time homebuyer
Low Credit Score Requirements
This is one of the most important factors that will be taken into account if you qualify for an FHA loan. The FHA requirements for credit score are far lower than the requirements for conventional loans. If you are planning to apply for an FHA loan than you should know that the following credit score information applies:
Credit scores at or above 580 are eligible for maximum financing
Credit scores between 500 & 579 are limited to a maximum Loan to Value (LTV) of 90%. Credit scores less than 500 are not eligible for FHA insured financing.
Low Down Payment
Those individuals eligible for maximum financing have to support at least 3.5% of the price of the property as a down payment. By accessing an FHA loan you will be allowed for 6 percent in seller concessions, this means that the seller can pay up to 6 percent of the closing costs.
Those who qualify for a Loan to Value (LTV) of 90% will have to make a 10% down payment or higher, depending on the terms of the loan agreement.
A Good Faith Estimate will be provided to the borrower within three days of their loan application. This estimate will break down the approximate costs based on the loan information provided, current rates, fees and other data
An important thing to keep in mind is that FHA keeps the payment of closing costs separate from the down payment itself.
Debt to Income Ratio
This is your fixed expenses with the new mortgage compared to your gross monthly income (income before taxes are taken out).
If you believe you can afford the payment, the FHA will allow a 50 percent debt-to-income ratio. It is calculated by adding up all of your debt, including your proposed new mortgage payment, and dividing it by your monthly income to get the percentage. In case of an FHA loan the amount of total monthly debt cannot consume more than 50% of the borrower’s total monthly income. These ratios may be exceeded with compensating factors.
Bankruptcy & Foreclosure
Even if you have suffered a foreclosure or you've filed for bankruptcy in the past few years, this doesn't exclude you from qualifying for an FHA loan. You can still qualify if you meet other requirements such as re-establishment of good credit, solid payment history, etc.
In the case of a foreclosure, this should have taken place at least 3 years old; as for a bankruptcy, the requirement is that it must be at least 2 years old. In both cases the borrower must have maintained a good credit history thereafter. In some cases FHA rules allow for some flexibility in these areas if the borrower meets certain requirements.
As you can see, an FHA loan can be a great choice if you struggle a bit and meet the few requirements. You may check the limit of how much you can borrow by accessing the following link:
With many years and a wide range of experience in the mortgage servicing industry, Casey Moseman stands ready to assist you; she can be contacted at 702-271-1274
Housing counseling can be valuable, especially for first-time home buyers. We will guide you through all aspects of the mortgage process, making sure that you receive all the details and friendly explanations during each stage of the transaction. We familiarize ourselves with each individual's situation, in order to provide you with the service that best meets your needs.