FHA or Federal Housing Administration is the largest insurer of home mortgages since it was created. FHA is the provider of mortgage insurance to FHA-approved lenders. So if you are looking for a home loan that fits your budget, then an FHA mortgage might be for you.
FHA home loan requirements
FHA loans are good for borrowers who cannot afford to put down a big down payment because you can go as low as 3.5%. If you have filed for bankruptcy in the past, it is possible to qualify for a mortgage that is FHA-backed. Here’s what you need to know:
- 5% down payment for a FICO score of at least 580; 10% down payment if the score is between 500-579. The COVID-19 pandemic has caused lenders to raise their minimum requirement so it best to ask your loan officer for an updated rating.
- The debt-to-income ratio should not be more than 43%
- The home you are applying for must be your primary residence
- Proof of income is a must so that the lender can see that you have a steady flow of income
- Mortgage Insurance Premium – MIP is a must
Buying a house is a long term commitment. So if you are in the market for a home loan, make sure that you start to prepare as early as possible. It would help if you start honoring your debts and obligations and paying on time for at least 12 months prior to your FHA loan application.
A pre-approval letter helps you narrow down your property choices. It will give you an idea of how much you can take out and it will give you credibility to sellers and lenders of how trustworthy you are as a debtor. To get a pre-approval letter, you must give your lender the authority to check your credit history and get information about your finances. Be aware that the letter is valid for 60-90 days only so time your house shopping well. It will help you establish your financial credibility but a pre-approval letter is not a guarantee that you will be approved for the loan, or the interested quoted to you at the time that the letter was issued.