If you don’t have much to spend on over a deposit for a home, you might just be perfect for an FHA loan. The Federal Housing Administration (FHA) insures loans particularly to higher-risk potential loanees as a method to get more U.S. citizens onto the property-ownership realm.
Now, what exactly does it mean when we say that the FHA “insures” these loans? For starters, the FHA doesn’t actually portray the lending firm for your home loan in this equation. Instead, what they do is they insure the loan. A private lending company like a bank or a commercial lending organization acts as the sole loan servicer. In that case, you’ll still be working with conventional lenders, except that your loan application is taking the government route versus the commercial pathway.
Here is a rundown of what to expect as FHA qualifications:
What is the mortgage loan amount under the FHA for your area?
FHA determines a maximum loan that differs from county to county, based on the cost and price of local housing. These usually range between $275,000 and 600,000, although in counties tagged as high cost, the limit can exceed that.
How healthy is your debt-to-income ratio?
The debt-to-income scale solely for your housing expenses in your new home should not go beyond 31%. Simply put, your gross monthly earnings multiplied by 0.31 equals the monthly mortgage payment you’re allowed to take on, according to FHA qualifications and standards. If your ratio is 29% or lower, you’re chances of an FHA grant becomes much higher.
How efficient is your credit?
Your credit standing will be an integral factor in establishing your eligibility for an FHA grant. If you’ve gone through foreclosure in the last three years, or bankruptcy in the past two years, you will not be able to meet FHA requirements. Know that to make the cut for a 3.5% deposit, one’s credit score will need to be, at the very least, 580. If one has a lower score, they’ll need to put in a 10% down payment or more. As a general rule in the loan market, the healthier your credit, the easier you qualify for a home loan.
Can you afford a 3.5% down payment on an FHA loan?
One of the biggest advantages of an FHA loan is that one can get away with forking out something as decent as a 3.5% deposit, assuming that your FICO score is sufficient. Compared to a conventional loan’s 5% to 20% needed down payment, the FHA can be a clear winner to many. Another bonus that works well to FHA’s advantage is that 100% of one’s deposit can come in the form of gift funds. This feature alone is something not available to many home loan programs.
For a more personalized computation and other specific information about other qualifications for FHA loan concerns, click the link to be routed to the leading FHA lenders!