Are you planning on buying a house in the near future? You may qualify for a number of different loans. Before attempting to get a regular mortgage, you might be better off applying for FHA home loans.
What is an FHA Loan?
The easiest way to explain an FHA loan is to tell you that it’s a loan that is fully insured by the Federal Housing Administration, also known as the FHA.
This type of loan is incredibly popular right now.
For first-time homebuyers, this loan is a dream because they often have a better chance at getting financing for their first home when compared to a conventional loan. FHA loan requirements are much less strict.
FHA Loan Requirements for a Down Payment
As mentioned, a mortgage backed by the Federal Housing Administration is different than a traditional or conventional loan.
For starters, you aren’t required to put 10% down as a down payment in order to purchase property. The 10% rule is a strict requirement with a conventional mortgage.
In fact, the down payment requirements are much less.
You only have to put down 3.5% of the buying price. For many potential homebuyers, this low down payment is a gift because they can’t afford a bigger down payment. So this option makes it possible to become a homeowner and live the American dream.
Credit Score for FHA Loan
As you are about to learn, the credit score requirements are a lot more lenient when you apply for FHA home loan.
In fact, the credit score needed for FHA loan is only a 580 or higher.
If you feel left out because your credit score isn’t 580 or higher, don’t worry because there is another option that may make it possible for you to qualify.
An alternative to having a 580 or higher credit score is having a score between 500 and 579. If your credit score falls within this range, you can still qualify for an FHA loan as long as you are willing to put 10% down on the property.
There is one caveat that we would like to bring your attention. If you have a lower credit score, you’ll end up paying higher interest rates. That’s how the system works and there’s nothing you can do about it except raise your credit score higher.
The Biggest Benefits of FHA Loans
In our opinion, we feel the main reason why you should consider applying for FHA home loans is because of three huge benefits.
The first benefit is the acceptance rate.
Out of every potential home loan or mortgage, qualifying and getting accepted for an FHA loan is definitely the easiest to accomplish.
So, if you struggled in the past to get a home loan, we highly recommend attempting to get an FHA loan instead. The rules are a lot less strict and many people are capable of buying a home with this type of loan even though they wouldn’t normally qualify for a conventional loan.
The second benefit is the low down payment.
This down payment is so low that it’s practically unheard of. In a typical real estate transaction, the buyer often has to put down in the neighborhood of 10% to 20% in order to even be considered for a traditional or conventional mortgage.
With FHA loans, the tables are completely turned and the buyer has a much greater chance at coming up with an FHA loan down payment.
Since you only have to pay 3.5% of the total asking price, it’s a lot easier to come up with this money than it is to come up with the full 10% or more.
So, if you want to buy a home and you’re struggling to come up with money for the down payment, you should look into FHA financing because it’s the easiest way to buy a house without the need to pay a huge initial down payment.
The third benefit is the credit score needed for FHA loan requirements.
Now that you realize you can afford an FHA down payment, there’s even better news because the credit score requirements are a lot more lenient than any other loan available today.
If you were to attempt to get a conventional loan, the mortgage lender wouldn’t even consider loaning you money if your credit score was below 660. And the brutal truth is someone with a 660 credit score is going to end up paying a much high interest rate.
In fact, even if your credit score is 700 your credit is still only considered fair. So you’re going to pay a higher interest rate with that score as well.
Forget about interest rates for a minute. Let’s focus on the positive, which are borrowers can qualify for FHA loans as long as they have a 580 credit score or better. And that is specifically if you want to qualify for the 3.5% down payment.
If you’re willing and able to put 10% down on the house, your credit score can fall within the 500 – 579 range. Ultimately, your capabilities of qualifying for FHA mortgage loans as opposed to conventional loans are a lot better even if you have a lower credit score.
FHA Mortgage Requirements
- The borrowers must have a steady history of employment or they must have spent the last two years working for the same employer.
- The borrowers must be lawful US residents, have valid Social Security numbers, and be legally old enough to sign a mortgage document within their state.
- The minimum FHA loan down payment requirement is 3.5%.
- The minimum credit score for FHA loan is 580.
- To qualify for the maximum LTV of 90% with minimum 10% down payment, the borrowers need to have at least a credit score of 500-579.
- An FHA approved home appraiser must appraise the property.
- The borrowers must take out mortgage insurance they receive an FHA loan.
- The front end ratio of the borrowers must be less than 31% of their total gross income, although some have been approved as high as 40%.
- The back end ratio of the borrowers must be less than 43% of their total gross income, although some have been approved as high as 50%.
How to Get an FHA Loan
To get an FHA loan, your lender must receive approval from the Federal Housing Authority. Without this approval, you will not receive the full benefits of this type of loan. Contact Main Street Lenders to find out more about FHA loan qualifications and learn how to find out if you qualify.