An FHA loan is provided to a home buyer by a lender, and insured by the Federal Housing Administration. This loan is appealing to many people because it requires a lower down payment and has flexible credit standards. In exchange for those terms, borrowers must pay mortgage insurance to protect the lenders and the government against default. You can get approved for an FHA loan by examining the application requirements and talking to a lender about your financial position and the house you want to buy.
Before you apply for an FHA loan or begin the househunting process, determine how much you can afford and whether your income and credit score will allow you to qualify for an FHA loan. You will be required to make a down payment of at least 3.5 percent of the home's purchase price for a standard FHA loan. If you have a low credit score, you may be required to make a down payment of up to 10 percent.
Income and Debt
The amount of your front-end mortgage payment, which includes the loan, mortgage insurance, homeowners insurance, property taxes and any HOA fees, must be less than 31 percent of your income. You might be able to get approved if those costs are higher than 31 percent, but your lender will have to be able to explain to the FHA why you are still an acceptable lending risk. All of your debt payments which include the front-end mortgage costs and any car payments, student loan payments, credit cards and other regular bills, must not be higher than 43 percent of your gross income. Again, exceptions can be made when you and your lender can justify a lower income or higher debt ratio.
With a down payment of at least 3.5 percent and all of the income and debt requirements met, you will need a credit score of at least 580 to qualify for an FHA loan. If your score is lower than 580, you may still get approved if you are able to make a larger down payment. Creditworthiness is usually reviewed on a case by case basis, according to Zillow, but a credit score higher than 580 will give you a much better chance at approval. If you have declared bankruptcy in the past, you will need to be at least two years out of that bankruptcy and establishing good credit. If you have a previous foreclosure on your credit report, you must be at least three years past that foreclosure and be able to demonstrate you have re-established your credit.
Find a Lender
The Department of Housing and Urban Development, or HUD, maintains a list of approved lenders for FHA loans in your area. Visit their website at hud.gov, and answer a few questions about where you are located and what type of loan you are looking for. You will receive a list of local lenders who can help you. The maximum amount of your loan will depend on where you live. Each region has a different mortgage limit for FHA loans.
Property Appraisal and Inspection
The FHA will require an appraisal of your home, and it will need to meet requirements that show it is in good condition. This is to ensure the amount of the loan is not higher than the value of the property. If repairs need to be made before the FHA will approve your loan, you can negotiate with the seller of the home or you can pay for the repairs yourself at closing. In addition to the FHA appraisal, you should also have a home inspection completed.
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