Do you care about the house that you dream to have one day? Do you care what happens to you once you become the homeowner when your FHA loan application is approved? If you answered these questions with ‘yes’, then you must know the details to be able to make the correct decisions. Back to square one, you should know how to qualify for FHA loans.
Around 80% of the people who take out the FHA-insured mortgage are first-time homebuyers. Like everyone around you, you too find FHA attractive for its “flexible eligibility criteria” and have probably asked “How much mortgage can I qualify for FHA?” But what are the requirements exactly? Let’s find out.
There’s no need to break a sweat trying to get that perfect 850 on your report. It’s possible, but not a very realistic option. True, you get to enjoy the benefits associated with it, but let’s see how your score might benefit you.
Generally speaking, those who have a score below 500 are disqualified. But in some cases where the applicant meets other basic requirements like a good payment history, they might be the exception. Other than that, individuals with a score in range 500-579 will be eligible, but have to make an increased down payment of at least 10%; those with a score of 580 or higher secure the mortgage loan, having to make a down payment of 3.5%.
While personal savings are always the ideal option to pay for it, sometimes it’s not possible and therefore the FHA allows borrowers to use grant from a local or state down payment assistance program or a gift from family member instead.
That’s the next sensible step in the process before you apply for the loan. You want to limit your risk so start collecting evidence as you build your credit history. Everything from bank statements to credit card and gifts – make sure you document and account for everything.
Obtain a free credit report and see the areas in which you can improve. Bankruptcy and foreclosure events in particular need a clean slate and two to three years must have passed following the event for you to be applicable for an FHA loan. You can use the time to get a suitable job, that is, your income should be enough for you to pay the due payments every month easily, and show a steady work history. Also, you can start to pay off other loans or credit cards you’ve been using to keep your DTI or debt-to-income ratio less than 45%. Making timely payments on your bill also helps.
That’s rule number 3 before you apply. This is because if the property you’re interested in is worth more than the maximum mortgage, then you’d not be approved for FHA.
The minimum requirements to qualify might change with time;, it’s better to speak to an FHA-qualified lender(s) in your area to see if you qualify and to evaluate your options accordingly.