FHA Loan Requirements
FHA loans are government-backed mortgage loans that help homeless people get into financial loans to buy a home. You do not need a good credit score to qualify for an FHA loan, you can qualify with a low credit card score and downpayment. You can also apply for an FHA loan for other financial assistance.
This article will help you to know more about FHA loan requirements.
What is an FHA loan?
FHA loan is suitable for those who have low savings, low credit score but want to build primary housing. Simply put, it protects the lender against losses if the borrower is not able to repay the loan on time or defaults. FHA loans are generally available for low credit scores and down payments.
FHA Loan Requirements
There are FHA loan requirements that a borrower must meet to apply for a loan.
- The home must be evaluated by an FHA-approved appraiser before purchasing.
- The house you purchased must be your primary residence. It cannot be your second home or investor property.
- Within 60 days of the loan closing, you must purchase the home and take possession of the property.
There are more specific conditions for qualifying which are mentioned below.
FHA Loan Down Payments
Minimum downpayment is usually associated with a credit card. Your credit card score usually ranges from 300 to 850 which determines your credit card eligibility. If you have a credit score of 580, you will get a loan of 96.5% according to the value of the house. The required downpayment is 3.5%.
If your credit card score is 500-579, you will qualify for an FHA loan, but there will be a 10% down payment. For example, to apply for a loan at Rocket Mortgage®, you will need a credit card score of 580. With the help of Mortgage Calculator you can find out the monthly payment estimate. You will also find out how the down payment affects the monthly payments. The advantage of an FHA loan is that it provides gift assistance. With this gift, you can make cash down payments. However, before accepting gift assistance, you must make sure that it is a gift or a loan in disguise.
FHA Mortgage Insurance
To qualify for FHA loan, you will need to have Mortgage Insurance Premium (MIP). The main purpose of this insurance is to ensure that the FHA guarantees the lender compensation if you are unable to repay the loan on time or default.
You need to pay mortgage insurance. FHA Mortgage Insurance is usually assessed in different ways.
First, an upfront mortgage premium charge of 1.75% of your loan amount is considered. Borrowers also provide an annual mortgage insurance based on a number of factors.
- The term of the mortgage
- Total mortgage amount
- Price to debt ratio
- Down payment
The annual mortgage insurance premium charge is usually 0.45% – 1.05% of the loan amount.
FHA Loans And Credit Score
There are a number of reasons why credit scores are required for an FHA loan. There are several factors that can determine your credit card score.
- Types of credit cards such as credit cards or credit loans etc.
- Your credit card usage determines your credit card score.
- Your bill payment history.
- Credit card debts
- The amount of credit you receive
The higher your credit card score, the higher your debt-to-income ratio. DTI is determined based on the percentage of your monthly income that will repay the loan.
Divide your debt by your monthly total income to determine the DTI ratio. If you have a monthly loan payment of $ 2,000 and your monthly total income is $ 8000, then your DTI will be 25%. The lower your DTI, the higher your loan eligibility.
Under the terms, your monthly mortgage payment must be within 31 percent of your total monthly income. DTI should be within 43% of your total monthly income. If you have a credit card with a good score, you will qualify with a higher DTI.
FHA Loan Limits
FHA loans have certain limits that limit the amount you can borrow. However, how much you can borrow depends on where you want to buy your home.
In low-cost countries, the range is usually lower and the upper limit is $ 420,860 which is suitable for a single family. In high-cost countries, the loan range is usually higher and the maximum is $ 970,800.
Below is a chart of FHA’s loan limits for 2022.
FHA Loan Limits
|Number of units||FHA standard loan limits||FHA high-cost area and special exception loan limit|