fha loans

An FHA Loan is a mortgage that is insured by the federal government and offered through FHA-approved lenders (lenders who have been approved by the Federal Housing Administration). FHA loans tend to be more flexible regarding credit score and DTI requirements.  It is possible for an individual to get approved for an FHA loan with a credit score down to 580 and with as little as 3.5% down payment.  For this reason, an FHA loan may be a good option for borrowers who may have had some previous credit hiccups and who may not have saved enough money for a large down payment.

FHA Loan Eligibility.  

Anyone can apply for an FHA Loan — whether you’re moving up to a larger home, downsizing to a smaller one, or buying for the first time – including DACA recipients and if the home is your primary residence.  All applicants must meet certain loan requirements, including:

• Proof of Verifiable Income and Employment History.  Applicants must be able to prove sufficient income to support the proposed house payment and other qualifying debt (see DTI requirements below).  In most cases, a two-year history of employment is also required.  There are a few instances where the two-year employment requirement is not needed (such as an individual who just graduated from school, a retiree or someone whose income is derived from disability).
• A Minimum Credit Score of 580.  It is possible to get an approval on an FHA loan with a credit score as low as 580; however, the lower the credit score the higher the interest rate, thus the higher your monthly payment.  There is a 2-year waiting period if you’ve experienced bankruptcy and up to 3 years after a foreclosure.
• Down Payment Requirement.  FHA requires a minimum investment of 3.5% from Borrowers.  An investment of 5% or more offers the benefit of a lower monthly mortgage insurance premium.  Additionally, financing your home with an FHA insured mortgage also gives you the freedom to fully fund your down payment with down payment gifts.
• Debt-to-Income Ratio (DTI) Requirement. It is possible to obtain an FHA approval with a debt-to-income ratio of up to 49%.  Your DTI is calculated by totaling the minimum payments on all your recurring monthly debts (student loans, credit card and installment payments, as well as your new proposed house payment), divided by your monthly gross income – expressed as a percentage. For example, if your new house payment is $1,800 per month, your car payment is $529 per month, and your minimum monthly credit card payment is $315, your total monthly debt is $2,644. If your gross income is $6,000 per month, then your DTI is roughly 44% (2,644 ÷ 6,000 = 44.06).
• Mortgage Insurance (MIP) Requirement.  When you finance your home with an FHA Loan you will be required to pay MIP for the life of the loan regardless as to how much money you put down.  The mortgage insurance premiums contribute to the insurance fund the government maintains, should a borrower default on their loan. As part of your closing costs, you can expect to pay an upfront mortgage insurance premium of 1.75% of your loan amount; as well as a recurring annual mortgage insurance premium of 0.45% to 0.85% of your loan amount (depending on your loan terms), that will be added to your monthly payment.
• Eligible Properties.  Unlike Conventional financing, FHA Loans 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. The loan amount must also fall within the FHA Loan limits for your area.  

 Applying for an FHA Loan 

It’s easy. To get started, you will want to gather the following (that applies to you):

1. Proof of income and employment (pay stubs, tax returns, W-2 statements, retirement statements Social Security statements, child support and alimony documentation etc.)
2. Documentation of financial assets (bank statements, 401k statement, document of income from investments, etc.)
3. Most recent two Residential history (Name and Contact information for current landlord, etc.)
4. Identity information such as your unexpired Driver’s License and Social Security card.

If you have questions and would like to speak to someone, give us a call at 832.946.8400.