FHA Loan Requirements
If you are shopping for a mortgage loan and do not want to dedicate a large sum of cash to your down payment, then an FHA loan might be the right choice for you. FHA loans are insured — not extended — by the Federal Housing Administration.
FHA loans are approved and made by FHA-approved mortgage lenders across the country. Insurance from the Federal Housing Administration reduces loan risk for mortgage lenders on single and multi-family homes.
This reduced credit risk allows mortgage lenders to approve FHA loans, which feature more lenient borrower qualifications than the requirements of conventional mortgages.
Apply for an FHA Loan: What’s Required?
Some FHA loan requirements apply to all FHA mortgages, and others vary based on the borrower’s FICO credit score.
- Borrowers with FICO scores of 580 or greater are required to have a 3.5% down payment.
- Borrowers with FICO scores between 500 and 579 must put 10% down on the purchase price.
- Borrowers can have a debt to income ratio (total monthly payments including proposed mortgage payment divided by gross monthly income) no greater than 43%.
- Borrowers must have steady, verifiable income and proof of employment.
- All borrowers, regardless of credit score and down payment amount, must pay for primary mortgage insurance (PMI) for the life of the loan.
- The home to be purchased with an FHA loan must be the borrower’s primary residence for the life of the loan.
In addition to these requirements, before approving a loan request and extending credit, lenders will consider an applicant’s character and entire credit history, including bankruptcies, foreclosures, short sales, collection accounts, late payments, length of employment and other extenuating circumstances.
If your credit score falls below 580, you will want to weigh the advantages and disadvantages of making a much larger down payment on your home purchase compared to the advantages and disadvantages of using that cash and taking the time to improve your credit score in order to qualify for the much lower down payment of 3.5%.
When considering the size of down payment, you will make on your home purchase, remember it is always best to keep some of your savings reserved to cover the cost of the unexpected expenses that go together with homeownership.
If your roof springs a leak or your water heater suddenly quits, you will be much better off financially covering these repair costs with cash rather charging them to a credit card.
If you have found it difficult to save a significant chunk of change and would like to take advantage of the small down payments available with FHA loans, then an FHA loan might be the right mortgage choice for you.
Our mortgage specialists at Mortgage Investors Group can help you start the process, determine your credit score and navigate the smartest route to homeownership for you and your financial goals. To apply for an FHA loan or learn more about other mortgage loan options, contact a representative with MIG in Tennessee today.