FHA HOME LOANS

What are the Qualifications for an FHA Home Loan?

An FHA home loan is one of the most accessible loans to qualify when buying or refinancing. An FHA mortgage may be the option for borrowers not qualifying for conventional financing. In comparison, the government-insured program allows for lower credit scores, higher debt-to-income ratios, and less stringent guidelines. Compared to conforming loans, more borrowers may qualify to buy a home. In addition, rates are lower, especially for borrowers with lower credit scores compared to conventional. This program can be a better overall lower monthly payment.

Are 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, a home buyer without experience can purchase and renovate a fixer-upper home.

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 7 days a week.

In addition, you may qualify for zero down payment and down payment assistance loan programs.

Please find out the best mortgage option for your situation. Call us today. Available 7 days a week.

 

What are the requirements for an FHA Loan?

  • 580 minimum Credit scores for a 3.5% down payment
  • Debt to Income ratios to 45% housing and 56% total
  • Gift funds costs may be used for both 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 easier qualification requirements than conventional mortgages, but they also 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 the down payment to be a gift from a relative or employer. The gift funds can be used for 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. Check with your Loan Officer at CharterStone Mortgage, where there is no limitation over the minimum guidelines.

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 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, the upfront mortgage insurance minimum time is 11 years.

FHA vs. Conventional Loans

What is the difference between FHA and Conventional? FHA Loans are for home buyers who don’t qualify for conforming loans or have low credit scores and can get better rates with FHA than conforming. The FHA Loan program requires fewer reserves and allows for low credit scores than conforming loans. 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 20% down payment require private mortgage insurance (PMI). PMI can be canceled after reaching 78% equity. FHA requires an upfront mortgage insurance financed into the loan and monthly mortgage insurance for the life of the loan with 3.5% down. Both are available for first-time home buyers. Fannie Mae HomePath and Freddie Mac Home Ready programs offer first-time buyers lower rates and mortgage insurance.  

What is the best home loan for you? Consult with CharterStone Mortgage to advise on the best loan programs for your set of income, credit history, and assets. We provide a side-by-side comparison. 

**CharterStone Mortgage is not affiliated with or acting on behalf of or at the direction of FHA, VA, USDA, or the Federal Government.

Programs are subject to change without notice. All applicants must meet underwriting guidelines from the lender that are subject to change without notice and must meet all Federal and State regulations. This information is not guaranteed to be accurate due to changing financial and economic environment.  

 

 

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