What are the current FHA Loan Requirements & Qualifications?
If you are in the home buying market, then you probably have been doing your research regarding the different loans that you may qualify for. No doubt, you may have run into a lot of information about getting approved for a loan and the different ways you can finance your house. You want to know exactly what you are getting into when making such a large purchase, we understand. Federal Housing Administration (FHA) loans are a popular financing option and may be the right choice to help you to secure your home.
In this article, we hope to make you more comfortable with the ins and outs of FHA loans and FHA loan requirements and to help you decide if you should apply.
What is an FHA loan?
Before we jump into FHA mortgage requirements, let’s take a step back and get some basics out of the way. As mentioned earlier, FHA is short for Federal Housing Administration. It was founded in 1934 and is a part of the U.S. Department of Housing and Urban Development (HUD). As its name implies, the FHA is a federal entity that insures mortgages on homes and even businesses like hospitals and residential care centers.
If you do not have the credit or finances to secure a home then a FHA loan may be helpful for you. There are certain requirements that need to be met by the lender in order to qualify for a FHA loan.
What are FHA loans backed by?
A FHA loan is a mortgage that is backed by the federal government. FHA collects insurance premiums from borrowers through the lenders, and these funds are then used to insure against losses from defaults or foreclosures.
Because of the nature of this program, homebuyers with higher debt-to-income ratios, lower credit scores, and lower incomes are able to still purchase a mortgage. FHA loans have been the way for millions of homeowners to secure a primary residence.
Are there limits to an FHA loan?
There is a limit to how much you can borrow with a FHA loan, so it is important to make sure that you know how much of a loan you are able to get.
The limits depend on the type of home being purchased, the state where it is being purchased, and the county it is located in. The maximum amount that is allowed is known as the FHA lending limit. This is a question you'll have to work with your lender to get an answer to, as every home and location is unique.
FHA Limits: Low Cost Areas
FHA Limits: High Cost Areas
Are there specific requirements for an FHA loan?
In order to receive a FHA mortgage there are a few requirements that you will have to meet. These requirements show your lender that can make your monthly payments on time. If you fall short of these requirements, it doesn’t mean that you cannot get a FHA loan if you’re not doing well in one of the categories.
What's the required credit score for an FHA loan?
The required minimum credit score for an FHA loan is 580. If you have a low credit score then you can begin to work on raising your score.
Try making on time payments consistently and paying more than the minimum amount on each payment. Paying off debt is one of the best ways to get your credit score into a better place. You still may be able to get a loan with a lower score, but you may have to make your down payment higher than the minimum.
Is there a minimum down payment for an FHA mortgage?
The minimum down payment for an FHA loan is 3.5% of the total purchase price. You will still need the cash for the down payment but it is considerably lower than some other loan types. Start saving money each month if possible specifically for your down payment. That way you will be prepared to make the payment. There are down payment assistance programs available for eligible applicants,
What level of DTI do I need for an FHA loan?
To apply for an FHA loan, your debt-to-income ratio will need to be less than 43%. Your debt-to-income ratio (DTI) is provided by dividing your monthly expenses by your take home pay. You want this percentage to be less than 43%. This means that after you pay all of your recurring monthly debt that you have money left over to pay your mortgage. Your DTI shows your lender that you have the ability to make monthly payments.
Does the FHA require mortgage insurance?
Most mortgages require insurance if you do not provide at least 20% of the down payment. However, a FHA loan does not have this requirement. With an FHA mortgage, you will need to provide an MIP upfront payment and make MIP annual payments. The amount depends on your loan total. How long you pay the MIP depends on the size of your down payment. A large down payment means less time paying the annual MIP.
Do I have to use the home that I'm applying for as a primary residence?
For an FHA loan, the home that you are purchasing must be your primary residence. This means that you cannot use a FHA loan for an investment property or as a second home. Your primary residence is the place where you live for the majority of the year. You will also have to move into the home within 60 days of closing on the property.
Where can I apply for an FHA loan today?
FHA loans have paved the way for many families of varying economic backgrounds to own a home. FHA loans make it easier for you to own a home by having less strict loan requirements. If you feel this is the right loan for you then it’s time to apply and move one step closer to owning your home.