FHA Requirements and Your Closing Checklist
Like any home loan, things that determine your individual FHA requirements are your down payment, credit score, debt ratio, and interest rates. Because FHA loans are subsidized by the U.S government, down payment requirements and interest rates relative to a buyer’s credit score are typically less imposing than some conventional loan options. Also, the requirements for qualifying for a FHA loan are far less rigid than the usual conventional mortgage. This government initiative has helped many Americans attain the dream of home ownership; this is why these loans are gaining popularity over time.
Let’s look at some of the basic requirements to know if you qualify for a FHA loan:
Loan Amount Limitations
The structure set by Federal Housing Authority pertaining to the amount of loan must be met. FHA loan limits vary according to the location where you plan to own a house. The main purpose of these loans is to assist lower and middle class Americans in buying a home. Therefore, there are variations in the maximum amount to be lent, based on locality. For example, the cost of living in New York City is typically higher than Grand Prairie, Texas. HUD takes cost of living into account and a buyer must be within the restrictions that are set for their particular county in order to qualify for FHA loans.
How To Prepare For Your Loan Officer
Before applying for a FHA loan, make sure you have the ability to repay it. That is why prior to obtaining the loan, FHA will look over your credit report and will evaluate it against your income. It is true that FHA loans are meant to serve people with a default credit history, but the lender cannot lend unless he is sure that you can pay back on time!
As per FHA requirements:
- The monthly mortgage loan shall not surpass 29% of your before tax income.
- In case of long term credit (such as car and student loans etc), mortgage should not be above 41% of your before tax income.
You will be required to pay at least 3.5% of the loan amount. This amount must come from your personal funds kept in the bank along with relevant documents for support. Money kept in your treasure chest will not be considered valid.
Some More Basic Requirements…
- Show that you have been employed with the same employer since the last 2 years;
- The total income for the last 2 years must be the constant or growing.
- FHA requires you to have a minimum credit score of 500 while any score below 620 is labeled as ‘subprime’; therefore, it is a good idea to apply for FHA loan if your credit score is equal to or above 620.
- Insolvency must at least be 2 years old with a good credit history from then on.
- Shut out must be at least 3 years old along with a satisfactory credit since then.
Apart from the basic requirements, there are certain documentation conditions to be met:
- Photocopy of the paychecks transacted in the past 30 days,
- Photocopy of the W2 forms and 1099 forms since the last 2 years,
- If self employed, copy of tax income list in the past 2 years,
- Photocopy of all relevant bank declarations and investments made by you in the last 2 months,
- Submission of driving license, passport and military ID (if any) to establish your identification,
- If you are self-employed, a copy of your Profit & Loss statement.