Before we jump into qualifications for an FHA loan, let’s discuss the basics. The Federal Housing Administration guarantees government-backed mortgages for qualifying individuals. If you are buying a home for the first time, FHA loans can help you qualify with lower down payments than conventional mortgages.
Despite what most people think, the government does not offer these loans. Instead, they work with several mortgage lenders to approve loans based on specific requirements that are less strict than traditional lender requirements. Let’s dive deeper into FHA loans and discuss what you need to qualify.
How Do FHA Loans Work?
FHA loans are the government’s attempt to help more people purchase a home despite the current state of our economy. They are most commonly used by first-time homebuyers with low to moderate incomes. Unlike traditional loans, FHA loans allow those with credit issues to qualify for a mortgage loan.
FHA lenders require lower down payments, typically between 3-4%. This is a great benefit to those struggling to save the traditional 20% required by most mortgage lenders. Additionally, individuals with credit scores below 650 can qualify for these loans. While there are still specific requirements you need to meet to be eligible for an FHA loan, they are much less strict than those required by traditional mortgage lenders.
How do you qualify for an FHA Loan?
There are several reasons why prospective homebuyers choose an FHA loan. Before you start to look into the process, you’ll need to understand the basic requirements you need to meet to qualify. FHA loan guidelines include:
- You will need a FICO score of 580 or more to qualify for a 3.5% downpayment. While you can also be eligible with a credit score of at least 500 to 579, you’ll need a higher downpayment. Those with a credit score below 580 will typically be required to put 10% down.
- You will need to provide and verify work history for at least two years before your application submission.
- You’ll need to provide the following additional income verification:
- Bank statements
- Federal tax returns
- Loans must be used for the purchase of a primary residence.
- The property you are buying needs to be approved by an FHA appraiser.
- You will also need to meet the HUD guidelines for your property.
- While you need to meet the minimum credit requirements and down payment, you also need to pay close attention to your debt to income ratio. FHA lenders typically want to see your debt to income ratio no more than 43%. Additionally, your monthly mortgage payments should not be more than 31% of your gross monthly income.
- You must also be free from filing for bankruptcy. If there is a bankruptcy, you may need to wait as long as 2-3 years to apply for your FHA.
- Some lenders will make exceptions to these qualification requirements for first-time lenders.
Contact All American Financial Services for Help with Your FHA Loan
Whether you are looking to apply for your first home loan or to refinance in Lancaster, we’re here to help. Contact All American Financial Services to talk to one of our financial advisors today!