If you're considering purchasing a home, you're probably aware that several types of mortgages are available to you. One popular option is an FHA mortgage. While FHA mortgages offer several benefits, you must also follow specific rules and guidelines to qualify for this type of loan. In this post, we'll explore the requirements you should meet before applying for an FHA mortgage.
What is an FHA Loan
FHA loans are mortgage loans backed—or protected—by the Federal Housing Administration (FHA). If you default on your mortgage, the FHA protects the lender against loss. Because of this "safety net," the qualifications for FHA loans are less strict than those for private financial institutions that don't have any protection against defaulted loans.
As a result, buyers with less-than-ideal financial histories who have struggled getting approved for a traditional loan can still qualify for a mortgage. FHA loans are also a popular choice for first-time home buyers who haven't established a good credit history yet or do not have a significant amount saved up for a standard down payment. The article "What is an FHA Home Loan" on our blog explains more about FHA loans and their benefits.
If your goal of homeownership seems out of reach, an FHA mortgage loan may be the right solution. However, as with any loan product on the market, applicants must still meet specific requirements. Let's break down those now.
FHA Loan Requirements & Tips for Approval
Maintain a good credit score.
Meet the debt-to-income ratio criteria.
Occupy the property as your primary residence.
Meet the property condition requirements.
Make the required down payment.
Pay mortgage insurance premiums.
Apply for only one FHA loan at a time.
Follow all FHA guidelines and provide accurate documentation.
Maintain a Good Credit Score
Maintaining a good credit score is one of the most critical requirements to qualify for an FHA loan. Standard loans require a minimum credit score of around 620. However, the FHA's minimum credit score is about 580, offering more flexibility to home buyers with lower scores.
Manage your credit responsibly and avoid late payments to keep your credit high enough to qualify for an FHA mortgage. If possible, avoid racking up excessive debts, too.
Meet the Debt-to-Income Ratio Criteria
It's essential to meet the debt-to-income ratio criteria if you're looking to secure an FHA loan—this means you should have a manageable percentage between your income and the amount of debt you wish to take on. Before applying for a loan on a home, ensure that your monthly pay is enough to cover your mortgage payments, bills, and other living expenses.
Occupy the Property as Your Primary Residence
When applying for an FHA loan, keep in mind that this type of loan is intended for owner-occupants only and not for investors or vacation homes. So, you must commit to using the property as your primary residence and make it your main home.
Meet the Property Condition Requirements
To be eligible for an FHA loan, the property must meet specific standards for safety and habitability. You may have to invest in some inspections and repairs to ensure the property complies with the requirements.
Make the Required Down Payment
Of course, when applying for an FHA loan, you'll have to make a down payment. Traditional home loans require 3-5% of the home's value as the down payment.
However, the minimum down payment for FHA loans is typically around 3.5% for qualifying credit scores (580+). While there is flexibility in the amount you can put down, credit score is the influencing factor. Talk to your loan officer for more information but expect to provide at least a portion of the purchase price as a down payment.
Pay Mortgage Insurance Premiums
FHA loans do require mortgage insurance, which protects the lender in case of default. Be prepared to pay both upfront and ongoing mortgage insurance premiums—check out our blog post to learn more about mortgage insurance and find out how it works.
Apply for Only One FHA Loan at a Time
Applicants can only apply for one FHA loan at a time. If you simultaneously apply for multiple FHA loans, your applications will be rejected.
A good loan officer will prevent you from making this mistake in the first place, so be sure to work with someone who has experience in the industry—like us!
Provide Accurate Documentation
Finally, it is essential to stick to all of the guidelines set by the FHA and provide accurate documentation. Maintaining transparency and honesty throughout the application process guarantees you'll meet this final requirement set forth by the FHA.
Never try to guess when completing application paperwork—providing the wrong information (even accidentally!) can land you in hot water. If you have any questions about the FHA application, reach out to us, and we can help!
Understanding and Benefitting from FHA Loan Requirements
Following these FHA mortgage requirements ensures a smooth loan approval process and will help you secure financing for your dream home.
By understanding and following these rules, you can enjoy the benefits of an FHA loan despite having little credit history. Then, you'll achieve your homeownership goals and can continue to build up your financial well-being.
Our experts at The Mortgage Minds Group want to make home-buying easy! Contact us here to get preapproved today for an FHA loan.
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