In general, the Federal Housing Administration has been a favorite go-to option for many home shoppers looking into finally buying homes. After years of renting, being able to own your property is a victorious feeling. However, how do you purchase a home when these properties cost more than an arm and a leg? While it’s true that there are a bunch of home loan types under varied home loan programs, not every single one of them works to everybody’s favor.
This is where the power of FHA’s flexibility comes in. Compared to how strict conventional mortgages are, the FHA stands out in more ways than one because of attainability. Before looking at filing for an FHA loan application, consider this particular loan program’s available benefits.
THE ADVANTAGE OF FHA LOANS
- LENIENT CREDIT POLICY
Should you have little to zero credit history at all, fret not. It is reassuring to know that FHA approval standards are considerably less challenging when compared to that of conventional loans. The FHA can take in applications from debtors whose credit scores are as humble as 500. Whereas conventional mortgages can only accommodate applicants with credit scores that are at least 620 to 640, FHA responds differently. The disparity then allows more people to build home equity a lot sooner.
- LOW DOWN PAYMENT
It’s no secret that conventional mortgages will demand a 5 to 20 percent down payment when purchasing a home. Under the FHA, those who meet the maximum financing credit score requirement can get the loan with only a 3.5% down payment. Again, through the FHA, more people can purchase homes a lot easier; which means being able to build home equity sooner is a perk plenty of borrowers enjoy under the FHA.
- DEBT-TO-INCOME RATIO
Sticking up to the goal of accommodating as plenty of qualified borrowers as possible, FHA mortgages make eligibility a lot simpler even if one has a massive amount of existing debt. For conventional mortgages, one is typically limited to having recurring debt payments and monthly housing totaling nothing beyond 45% of one’s income. Under the FHA, this figure gets a bump up to 50%.
- LOWER INTEREST RATE
Borrowers whose credit standings aren’t in great shape may have to face a higher interest rate under conventional mortgages. Under the FHA, there is no such thing. This is because FHA interest rates are the same despite borrowers’ differences in credit histories. That means one can save even more with interest payments under the FHA, should his or her credit be lacking.
FHA LOAN REQUIREMENTS 2018
Granted that one’s loan originator will provide a complete list of the paperwork needed for an FHA loan, here is a summary of the standards borrowers will need to meet to make the FHA cut:
- DOWN PAYMENT
Borrowers will have to have enough funds to at least put in a 3.5% down payment of the purchase price.
Only borrowers with a base credit score of 580 can qualify for the 3.5% down payment. Borrowers with credit scores below 580 all the way down to 500 may still be eligible but will need at least a 10% down payment.
- WORK HISTORY
A stable work history. Borrowers must also have worked for the same employer for at least two years since the date of application.
Borrowers’ income must be verified through federal tax returns, pay stubs, and bank statements.
The subject property will be appraised by an FHA-certified appraiser and should meet HUD guidelines.
- DEBT-TO-INCOME RATIO
Borrowers’ front-end debt scale must not go beyond 31% of his or her gross monthly income, although some lending companies can permit a ratio that reaches 40% in selected circumstances. Debtors’ back-end ratio must not go beyond 43% of his or her monthly income, although lending firms may permit a ratio that reaches 50% in selected cases.
- BANKRUPTCY AND FORECLOSURE
Borrowers who’ve experienced bankruptcy are required to wait for two years before they’re able to apply for an FHA loan. It is also understood that these applicants must have re-established good credit in that span of time before they are accommodated. Furthermore, those who’ve gone through bankruptcy must wait for three years and are expected to do the same. In some instances, lending firms can make an exception should borrowers be able to prove that these economic downfalls are due to extenuating circumstances, and not business or personal lapses.
For further matters on FHA qualification requirements, click the link!