The Federal Housing Administration usually insures FHA loans with a down payment of 3.5% for those with a credit score of 580 or more. The loans are only issued by an approved FHA lender or a bank. The down payment and credit score are lower compared to conventional loans. The main aim of FHA loans is to enable first-time home buyers and moderate families to acquire home ownership.
The process of getting an FHA loan
Look for a Lender
You can choose a private lender since FHA does not give loans directly. You will need to find a lender who is FHA-approved. It isn't easy to find a lender since major banks and mortgage companies offer FHA loans. You should do thorough research and compare the credit score; a good lender should have a minimum credit score of 580.
After finding a lender, the next step is to submit an application, which can be done online, or you can visit the lender's offices.
Provide the details
The details of the information required vary from one lender to another. The most standard basic details needed are personal information and property details.
FHA loan requirements
To apply for an FHA loan, you have to meet several requirements that include;
- Being a resident of the USA
- Have a valid social security number
- Be of legal age
- Provide bank statements for the last 30 days and any documentation for deposits made.
- Have a minimum credit score of 500.
- Proof of income
- Good payment history of bills
Additional information provided before the FHA loan process include:
- For veterans, a certificate of eligibility
- Provide the names and locations of employers for the last two years
- Filed personal tax returns for the past two years
- If self-employed provide a valid business balance sheet
- Pay for credit report
- Provide details for a savings account and open loans
- Give an approximate value for all personal property
- Provide a gross monthly salary for your current job
If you meet the requirements and provide the necessary documentation, your lender will access the financial statements and approve or deny your application within 24 hours.
Factors involved when taking FHA loans
- Mortgage insurance: You have to pay upfront mortgage insurance premiums and annual mortgage insurance premiums. The upfront fee is normally 1.75% of the loan amount, and the monthly premiums entirely depend on the property's value. The cost is calculated on the FHA Loan Calculator.
- Property type: The property you want to acquire can be a single-family or a multi-family home for four families. It should not be an investment property, and the title should be in your name or the name of someone living in the home.
- Credit score and down payment: The minimum down payment is 3.5% for a credit score of 580 or more. For a credit score of 500-579, the down payment is 10%.
- Debt-to-income ratio: The debt-to-income ratio is calculated by the monthly contributions toying the debt divided by the monthly gross income.
The loan limit is $420,860 for single-family homes living in low-cost areas and $970,800 for families living in high-cost areas. The loan limit varies in states and counties.
Why a FHA loan is right for you
- Lower credit score: You don't have to worry if you have had a bad credit score in the past. You can apply for an FHA loan and get approved with a credit score of as low as 500.
- Low-interest rates: FHA lenders offer lower interest rates for FHA loans compared to conventional types of loans
- Low down payment: The down payment for FHA loans starts from 3.5%, which is a dream come true for most low-income homeowners.
- FHA loans are guaranteed: the Federal Agency acts as your guarantor, and in case you default, the lender is compensated.
FHA loans are designed to help low-income people become homeowners. If you think FHA loans are right for you, feel free to contact our expert loan officers for advice and guidance.