Written by - February 11, 2023
Introduction
One of the benefits of using the Federal Housing Administration (FHA) to secure a home loan is the availability of more lenient lending standards. FHA loans allow individuals with lower credit scores and smaller down payments to obtain mortgages. However, in return for this flexibility, FHA loans come with a set of requirements that must be met by borrowers.
Mandatory down payment and credit score
The first requirement for an FHA loan is a down payment that amounts to at least 3.5% of the price of the property being purchased. Furthermore, borrowers must have a credit score of at least 580 to qualify for this type of loan. Keep in mind that individual lenders may have additional requirements when it comes to both down payments and credit scores.
Stable income and employment
When applying for an FHA loan, borrowers must be able to demonstrate a stable source of income over the past two years. This can include income from self-employment, employment, and other sources. In addition to a reliable source of income, you must also have a history of employment, with at least two years of steady employment.
Debt-to-income ratio (DTI)
Another requirement for an FHA loan is maintaining a debt-to-income ratio of no more than 43% of your gross monthly income. This means that your monthly debts cannot exceed 43% of your monthly income. Calculating this ratio can be complicated, so it’s best to consult a mortgage professional to determine what your DTI would be.
Property requirements
There are also requirements specific to the property being purchased with an FHA loan. All properties are required to meet certain health and safety standards, and homes built prior to a certain date must be evaluated for lead-based paint hazards. Additionally, the property must be used as the borrower’s primary residence.
Mortgage insurance premium (MIP)
Another requirement for an FHA loan is to pay a mortgage insurance premium or MIP. This insurance protects the lender if you default on your loan. The MIP is divided into two parts: an upfront premium that is typically 1.75% of the loan amount and an annual premium that ranges from 0.45% to 1.05% of the loan amount.
Two types of FHA loans
Two types of FHA loans are available. The first is the 203(b) loan, which is the most commonly used loan. The second is the 203(k) loan, which allows borrowers to finance up to $35,000 in repairs and renovations in addition to the purchase price of the home.
Loan limits
Loan limits determine the maximum amount that can be borrowed using an FHA loan. The limits vary by county and are based on average housing prices in that area. In 2021, the FHA loan limits range between $356,362 and $822,375, depending on the county where the property is located.
The role of an FHA-approved lender
As you go through the process of obtaining an FHA loan, it’s important to remember that not all lenders are approved to offer these loans. To qualify for FHA loans, lenders must meet certain requirements set by the government. Mortgage Brokers Pro is an FHA-approved lender that can walk you through the process of getting an FHA loan.
Closing costs
Finally, it’s worth noting that borrowers are responsible for closing costs associated with an FHA loan. These costs typically include title search, title insurance, appraisal fees, and other expenses related to closing the loan.
Conclusion
In conclusion, borrowers must meet several requirements to obtain an FHA loan. From mandatory down payments to credit score and income requirements, these loans offer flexibility but come with important responsibilities and obligations. By working with an FHA-approved lender like Mortgage Brokers Pro , you can navigate the process of obtaining a loan and enjoy the benefits of owning a home.