What are the Qualifications for an FHA Home Loan?

An FHA home loan is one of the easiest loans to qualify for when buying or refinancing. An FHA mortgage may be the option for borrowers that can’t qualify for more stringent requirements of conventional financing. In comparison, the government-insured program allows for lower credit scores, higher debt-to-income ratios, and less stringent guidelines. In addition, interest rates are lower, especially for borrowers with lower credit scores as compared to conventional loan programs. the FHA Home loan program can provide a better overall lower monthly payment.

If you looking to purchase a primary residence, an FHA Home loan may be the best option. FHA also offers a home renovation loan. The loan includes the purchase price and cost of renovations with a 3.5% down payment. As a result,  homebuyers without experience have the opportunity to purchase and renovate a fixer-upper home.

Feel free to call us for details. We are available at your convenience to compare FHA loans to other first-time buyers and conventional loans. Find out the best mortgage option for your situation. Available seven days a week.

What are the requirements for an FHA Loan?

• 580 minimum Credit scores with a 3.5% down payment
• Debt to Income ratios to 45% housing and 56% total
• Gift funds may be used for the down payment and closing costs.
• No Income limits
• The first-time buyer status is not required.
• Property types allowed are Single-family homes, townhomes, 2-4 multifamily homes, manufactured homes, and approved condos.

What is an FHA Loan?

FHA loans are mortgages insured by the Federal Housing Administration. The federal government guarantees mortgage insurance. Consequently, the government will repay the loss to a lender if a borrower stops making payments. Buyers may apply for an FHA home loan with private lenders like banks, credit unions, direct lenders, and mortgage brokers.

Furthermore, in 1934 during the Great Depression, the housing market was struggling. Consequently, the FHA government agency was formed. The agency assisted households in buying homes. For example, buyers could only finance 50% of the home value at that time. FHA solved that issue. As a result, homeownership rates increased from 40% to about 70% today.

Suppose you’re looking to finance your home with a small down payment and more lenient approval terms. An FHA loan could be right for you. FHA loans have more specific qualification requirements than conventional mortgages but have more costly mortgage insurance fees and often lower loan limits.

Benefits of FHA Home Loans

Low Down Payment

FHA Loans allow you to buy a home with a 3.5% down payment. In contrast, conventional loans may require a larger down payment. In addition, conventional loans need higher credit scores.

Gift Funds

FHA allows gift funds from a relative to qualify to the down payment and closing costs. 

Higher Debt to Income Ratios

What are the debt-to-income Ratios allowed for an FHA Loan? FHA allows for a housing ratio of 45% and a Total Debt to income ratio of 56%. However, some lenders have restrictions and only allow for lower ratios. We review the file and match you with the right lender.  

What are the FHA Loan Limits?

In addition to homebuyer qualification requirements, FHA limits the loan amount according to property type and region. The government calculates the maximum allowed loan amount by each county’s median-priced home. 

FHA Mortgage Insurance

What is mortgage insurance? As stated above, mortgage insurance insures the lender against losses should the borrower default. FHA requires the borrower to pay an up-front mortgage insurance premium. The upfront mortgage insurance is financed into the loan amount. However, this amount is not considered in the loan maximum loan limit. In addition, FHA also requires monthly mortgage insurance. Loans with less than 10% down require MI for the loan life. However, with a down payment of 10% or more, MI is required for at least 11 years. 

FHA vs. Conventional Loans

What is the difference between FHA and Conventional?  FHA Loans are for homebuyers who don’t qualify for conforming loans or have lower than very good credit score ratings. for lower credit scores the FHA program normally provides lower interest rates than conforming loan programs.  The FHA Loan program has less stringent qualifications and requires no  reserves. In Contrast, Conventional loans are best for home buyers with very good to excellent credit scores and may have larger down payments and cash reserves after closing. 

Conventional loans with less than a 20% down payment require private mortgage insurance (PMI). PMI can be canceled after reaching 78% equity automatically or upon request. FHA requires upfront mortgage insurance financed into the loan and monthly mortgage insurance for the life of the loan with 3.5% down and for a minimum of 11 years with a 10% down payment. Both are available for first-time home buyers. Fannie Mae HomePath and Freddie Mac Home Ready programs offer first-time homebuyers lower rates and mortgage insurance.  

What is the best home loan for you? Please consult CharterStone Mortgage to help you figure out the best loan programs for your income, credit history, and assets. We provide a side-by-side comparison.

CharterStone Mortgage is not affiliated with any government agency. Loan programs are subject to change without notice. All applicants must be credit approved. Not all applicants are approved. Information is subject to change without notice.