Qualifying for an FHA Loan (Easy Guide)
The Federal Housing Administration (FHA) provides people from both low and moderate income families an opportunity to purchase a house with easy credit options. They are the most flexible of all mortgage loans that offer housing loans to people with limited budget and impaired credit history. If you’re looking for some info on qualifying for an FHA loan, read on for more…
How to Qualify for FHA Loans
FHA has determined criteria to assist borrowers in getting the money they qualify for and help lenders reduce their risk of lending money.
Meet the Pre-Qualification Terms
There are certain conditions to qualify for an FHA loan.
- You need to show two years of steady employment with same or increasing income.
- You should have a minimum credit score of 620 with a history of less than 230 days late payment in the last two years.
- Bankruptcy and foreclosure must be at least two years old with a perfect credit score after that.
- Your mortgage payment should be approximately 30 percent of your gross income.
These conditions are not too strict. If you don’t meet all the requirements, you can still get your loan approved having an appropriate reason.
Save Enough Money to Make a Down Payment
Every loan necessitates a down payment. Down payment in FHA is relatively low. With an FHA mortgage, you can pay 3.5 percent of the house’s cost. For example, if you qualify for a $500,000 mortgage, you have to pay $17,500 as down payment as against $25,000 if you had applied for a conventional mortgage.
You should have enough money saved to make down payment. Without paying this lump-sum money, there is no way you could get a loan.
Get a Mortgage Insurance
As the down payment is quite low in FHA loan, the risk for lenders is high. The lender wants you to have mortgage insurance so that they may have some guarantee of return. This private mortgage insurance covers the risk of you not meeting your financial obligation. Since your lender is at high risk, he may guide you well about where you can find good mortgage insurance.
(READ: 4 Ways on How to Drop PMI on Your FHA Loan Payment)
Get the Necessary Documents Ready
When applying for a mortgage loan, your lender will require you to submit documents that confirm your employment status, income, savings, and credit information. It is a comprehensive look at your financial health stating your payment of taxes, job records and personal information.
You should have all the required information collected and related documents compiled from past two years to be submitted before getting a mortgage.
Prepare for Property Evaluation (Home Inspection)
Before approving the mortgage, your lender will inspect and analyze the property you are going to buy. Even if you meet all requirements but fail to pass the FHA-approved assessment, your loan may be denied. The inspection team analyzes your property to make sure that it conforms to the health and safety regulations. They also investigate the real worth of your property by comparing it with other houses in the area.
You should evaluate different options when getting a mortgage loan. It’s better not to rely solely on your lender for loan suggestions. You should do your own research to know which type of loan suits your requirements.