When conventional mortgage lenders have out-of-reach requirements, don’t lose hope, FHA loan requirements are easier to meet. In this article, you can check out what an FHA home loan actually is and what you need to qualify for one. Remember that it’s not the right choice for every would-be homeowner, but it may be the right one for you!
What’s an FHA loan?
FHA stands for ‘Federal Housing Administration’, a U.S government agency dedicated to, among other things, monitoring and insuring loans provided by different lenders. The FHA backs up home loans, that is, it pays the loan in case the borrower fails to do so, in order to promote home ownership. In this way, this government agency encourages lenders to grant mortgage loans to applicants who would otherwise be rejected.
How can I qualify for an FHA loan?
Income
To qualify for an FHA home loan, you won’t need to be making much money, just enough to comply with your monthly loan payments. To figure out how much income you need to get an FHA mortgage, google ‘FHA loan calculator’.
Debt-to-income ratio
This is another way lenders have of measuring the repayment ability of a borrower. You can calculate your DTI ratio by dividing the total monthly debt by your gross monthly income. The result has to be stated as a percentage, and the usual recommendation is that it doesn’t go above 31 percent.
Loan amount
Take into consideration that the amount of money you’ll be able to borrow from your lender will be estimated according to the lowest home prices in your region.To check your loan limits, you can go to the U.S Department of Housing and Urban Development. After filling out the form, you’ll be able to know how much you can require from your lender.
Credit score
Your credit score can impact not only on your ability to get a home loan, but also on your chances of qualifying for a credit card. But what is it? Your credit score refers, in most cases, to the FICO score, which is a number between 300 and 850 that defines your likelihood of paying off a loan. The higher the number, the higher your likelihood of repaying your debt.
Mortgages that aren’t backed up by the FHA may require a credit score of at least 620. If, however, you’re applying for an FHA loan, you may get it for a 3.5 percent down payment as long as you have at least a minimum of 580. If your FICO score is even lower, the lender may request you to provide a 10 percent down payment.
Are FHA loans the right option for me?
Take into account that to get an FHA loan, you’ll need to pay the agency a mortgage insurance premium for backing you up. In some cases, if you can afford a large down payment, a conventional mortgage may save you big bucks in mortgage insurance premium. Besides, if your credit score is lower than 500 you probably won’t be eligible for FHA home loans.