With relatively relaxed lending standards and low down payment requirements, FHA loans are a godsend for those who want to purchase a home but are on a tight budget. But are you sure you qualify for the mortgage loan? How do you know if you qualify for an FHA loan?
The following are the factors that determine whether you’re eligible for an FHA loan.
Yes, even the FHA sets limits to the amount of mortgage loan you can seek in a particular area. These vary from each county, and depending on the price of the local properties there, may be higher in some places than others. Generally, though, it’s set between $275,000 and $650,000.
The credit score is a major determinant of your eligibility for an FHA loan, or pretty much any loan for that matter. While a score of at least 580 lets you meet the criteria for the 3.5% down payment, bankruptcy in the last two years and foreclosure in the last three ones do not help. And if the score drops any lower and you can still find a willing lender, you can get away with at least 10% or more of the down payment.
Unlike conventional loans, the requirements regarding the income and debt obligations are quite flexible when it comes to FHA programs. Calculate your gross income, the money from the income and dividends, along with your debt obligations for every month, including the student loan payments, credit card bills, and housing payments. If the ratio is too high, 43% being the maximum, then it’d be hard to qualify for the FHA loan. At or less than 29% is a good place to be.
FHA-approved lenders are more willing to back you up if, for instance, you can show a history of steady employment for at least the last two years. Couple it with the fact that you’ve been with the same employer for the entire duration, and you’re golden!
If you are shopping around for the loan to purchase a hunting lodge, a vacation house, or even a beach shack for instance, then FHA loans are not designed for you, simply because they are meant to finance projects where people are going to live in the whole year-round.
Besides income and employment history, you need to submit your current address, your Social Security Number, federal tax payments, bank balances, approximate value of the current property, and any loans you’ve got going, for starters. Veterans need to provide copies of documents related to their service record as well. Confirm about everything that needs to be given in with the application from a loan officer. This is important given that banks or individual lenders do enforce their own requirements, which are often more rigorous than the ones demanded by FHA, so shopping around before settling for anyone does come handy.
Another thing that you ought to do is to ensure the property pass the inspection that determines their suitability for the FHA mortgage.
One last thing is that meeting the FHA qualifications in no way guarantees that it is indeed the right loan for you. Don’t hesitate in checking out all the options available before you finalize the purchase.