FHA LOAN

An FHA (Federal Housing Administration) Loan is a mortgage that’s insured by the federal government and offered through FHA-approved lenders.

FHA Loans have more flexible credit score requirements and are a good option for borrowers who may not have saved enough for a large down payment. You can finance an FHA Loan with a down payment as low as 3.5%*, making it an affordable mortgage option for millions of home buyers, especially first-time home buyers.

*FHA Payment example: If you bought a $350,000 home with a down payment of 3.5%, for a loan amount of $337,750, on a 30 year loan at a fixed rate of 6.0% (6.10% APR), and a $157/month private mortgage insurance payment, you would make 360 monthly payments of $2,204.00. Payment stated does not include taxes and insurance, which will result in a higher payment.

FHA Loans can only be used to finance a primary residence. FHA Loans require a mortgage insurance premium (MIP), in the form of an upfront payment and ongoing monthly payments, similar to private mortgage insurance for conventional loans. 

FHA Loan Eligibility

Anyone can apply for an FHA Loan including DACA recipients. All applicants must meet certain loan requirements, including:

• Proof of steady employment history and verifiable income
• A minimum credit score of 580 with a 3.5% down payment
• A debt-to-income ratio of 45% or less (see below)
• The home must be your primary residence and the property must meet HUD guidelines
• Up to 2 year waiting period if you’ve experienced bankruptcy and up to 3 years after a foreclosure

FHA Loan Credit Score Requirements

One of the most attractive features of an FHA-insured loan is its flexible credit requirements. While conventional loans typically require credit scores of at least 620.

Building your credit score before applying for an FHA Loan is good idea because a lower score will mean a larger down payment requirement and a higher mortgage interest rate. You can get a free copy of your credit report at annualcreditreport.com (this is your credit report and does not include your credit score).

FHA Loan Down Payment Requirements

If you have FICO® credit score of 580 or higher, then you can make an FHA Loan down payment as low as 3.5% of your loan amount. Additionally, financing your home with an FHA insured mortgage also gives you the freedom to fully fund your down payment with "gifted funds". These gift funds can come from family, friends or your employer.

FHA Loan Debt-to-Income Ratio (DTI) Requirements

Like your credit score, your debt-to-income ratio (DTI) also shows the lender how you manage your finances. Your DTI is your total recurring monthly debts (student loans, credit card payments, etc.), divided by your monthly pre-tax income, expressed as a percentage.  For example, if your rent is $1,000 per month, your car payment is $500 per month, and your monthly credit card payment is $800, your total monthly debt is $2,300. If your gross income is $6,000 per month, then your DTI is roughly 38% (2,300 ÷ 6,000 = 38.3).

When applying for an FHA insured loan, you should strive for a DTI lower than 45% – anything higher might not qualify for a loan approval. When applying for any loan, the lower your DTI, the better. 

Mortgage Insurance Premium (MIP) for the FHA Loan

A Mortgage Insurance Premium (MIP) is required when you finance with an FHA Loan. Your mortgage insurance premiums contribute to the insurance fund the government maintains, should borrowers default on their loans. When you close on your home purchase with an FHA Loan, you pay an upfront mortgage insurance premium of 1.75% of the home’s purchase price. A recurring annual mortgage insurance premium of 0.45% to 1.05% of your loan amount (depending on the loan term), is added to your monthly payment.

FHA mortgage insurance is not cancellable.

Properties Eligible for an FHA Loan

Unlike a conventional loan, an FHA Loan can only be used to finance a primary residence. Eligible primary residences can include single family homes, multifamily homes (two to four units), condos, and certain manufactured homes. Before getting loan approval, the home will need to be appraised. The loan amount must also fall within the FHA Loan limits for your area.

How to Apply for an FHA Loan

Like any mortgage loan, to apply for an FHA mortgage you will need to provide the following:

• Proof of income and employment (pay stubs, tax returns, W-2 statements etc.)
• Documentation of financial assets (bank statements, etc.)
• Residential history (previous two years’ worth)
• Your credit history. It is also a good idea to check your credit report and score. This will not hurt your score. click here
  
• Identity information like your driver's license, Social Security card, and date of birth in order to apply

To start your conventional loan application and get pre-approved click here  

If you have any questions, you can call or text me at 480-452-5282