An FHA mortgage is a loan that is insured by the Federal Housing Administration. They allow prospective homeowners to buy homes with low down payments, hence the popularity with many of those buying a property for the first time. Under an FHA mortgage, a borrower can purchase a home with only a 3.5% down.
An FHA mortgage is suitable for first-time homebuyers who do not have sufficient funds to cover a down payment. Interestingly, loanees who’ve experienced foreclosures and bankruptcy may still very much qualify for an FHA loan.
FHA Loan Requirements:
– Credit Requirement
Borrowers under this government loan program must have a credit score of at least 580 to be eligible for the lowest down payment allowed at the moment—3.5%. If an applicant’s FICO standing is below that, they will have to put in a 10% down. Still, not everyone cuts an FHA grant as 500 is the lowest credit score the FHA will allow. It’s also best to remember that while the FHA insures the mortgage for borrowers with low credit scores, several lenders may also have their own credit standards, so maintaining a decent credit score is still irreplaceable.
– Applicant’s Credit History
Any lending firm will be adamant to reviewing a borrower’s credit performance history, all while bankrolling their loan. A good track record of payments paid on a timely manner will make qualifying for the loan a lot easier.
Here’s a list of things that can negatively impact one’s application:
– No Credit History
If a borrower hasn’t been able to build a credit history or does not utilize traditional credit, lenders must resort to acquiring a non-traditional credit report obtained from various means.
Bankruptcy does not immediately disqualify a buyer from qualifying for an FHA loan. But at least two years must have gone by before an applicant may try out. It’s also essential that in the span of those two years, good credit has been re-established, or has chosen not to take on new credit commitments.
– Late Payments
Late payments in the most recent 12 months of one’s application may turn out to be a deal breaker. A borrower must see to it that all of their credit responsibilities for the past year has been met on time.
– Federal Debt and other existing debts
Generally, the FHA dictates for the lending company at hand to ascertain that judgments are paid off or resolved at closing, if not before.
– Down Payment
While the FHA allows low down payments, it is still imperative for borrowers to have enough money to pay for closing costs and other fees necessary in closing a deal. Fortunately, loanees who need help with a down payment are allowed to use gift funds for the down payment. FHA guidelines not only regulate where the funds will be coming from, but they are also very particular with who are allowed to offer these gifts. That said, borrowers must be ready to present documentation regarding the source of their gift funds and who the giver/s are.
For the complete list of the FHA loan eligibility requirements, click the link!