Let’s start with the basics: What is an FHA loan and what are the FHA loan requirements?
These are loans that are administrated and insured by the Federal Housing Administration. Loans can be acquired with deposits as low as 3.5% and a lower credit score, 580. I do want to mention that it is possible to get approved with lower scores. The official guidelines do state “10% down payment if your credit score is 500-579”. However, there are going to be many hoops to jump through if your FICO scores are in that range.
That being said; if you have limited savings or are in a lower income bracket, this type of loan gives you the chance to buy your first home or refinance an existing home.
But every type of loan comes with just a few requirements and an FHA loan is no exception. Going through each requirement and understanding as much as possible about them will give you a leg up when going to acquire an FHA loan.
Who can get an FHA loan?
FHA loans, while common among first-time home buyers, are not exclusive to them. Whether this is your first or fifth home or you’re simply looking to refinance your existing home, an FHA loan can offer some tantalizing benefits.
Debt-to-income guidelines
Every type of mortgage loan looks at the debt-to-income guidelines when choosing whether to lend to someone or not. The FHA requires that the debt-to-income ratio not be more than 50% for the loans they’re looking to issue. This measures how much of your income, before taxes, you’re spending on monthly debt payments already, helping them to determine if you’ll make the minimum payments needed to pay down the loan.
Income requirements
Unlike other types of mortgage loans, FHA loan requirements have no maximum or minimum salary needed to acquire a loan. Instead, borrowers are required to have at least two types of established credit accounts like a car loan and a credit card. They must also not have any delinquent federal debt and they must also have an account for cash gifts for the down payment.
Documentation
Just like any other federal agency, the FHA loan requires several different types of paperwork and documentation to be considered viable.
Each applicant is required to provide proof of their Social Security number and pay stubs or W-2s. An FHA agent will walk through any additional paperwork needed when the application is being made. Some places may require different sets of paperwork so be sure to ask and double-check with your FHA agent on what is needed for your specific application.
Property requirements
The property itself has several requirements attached to it when going through the FHA loan process. The property being purchased must be a primary residence for the borrower. This means that it can’t be an investment property or a summer home. Someone must occupy the house at least 60 days after closing and an FHA strict inspection must be conducted before the loan is awarded to the borrower.
Limits
While there is no minimum or maximum salary required for an FHA home loan, there are limits on the loans themselves. In low-income areas, the maximum limit of an FHA home loan is $331,760 and in high-income areas, it’s upped to $765,600.
Takeaway
An FHA home loan gives families and individuals with lower income or fewer savings the chance to purchase a home or refinance their existing home. While the FHA home loan has several more restrictive requirements, they are by no means prohibitive.
The FHA home loan program may take time to understand and interpret but with helpful agents and great benefits, it’s worth the effort.
