Qualifying for a FHA Loan
FHA loans are guaranteed by the US Dept of Housing and Urban Development. These loans are designed to help more Americans qualify for a home purchase through low down payment (3.5%)*, easier credit standards and more flexible debt/income ratios. These loans have a maximum loan amount of $498,257.
In terms of qualifying for the loan, there are four areas to consider:
Credit
Credit history should be good. Although FHA loans can be obtained with credit scores as low as 580, these lower score loans generally require compensating factors. Prospective borrowers should review their credit report with a First Equity loan officer to determine qualifications.
Income
Borrowers must have a stable source of income. 24 month employment and/or college history is needed. Some exceptions do apply. Although programs may vary, generally the total debt, including the new house payment, should not exceed 45% of gross (pre-tax) income. Income from part time jobs, bonuses or commissions can be counted if there is a 2 year history.
Reserves
Reserves are a liquid source of cash that a borrower can tap into after closing in case of a hardship to help make their mortgage payments. Although reserves are not always required, sometimes having reserves can help a borrower qualify. The most common forms of reserves are IRA or 401K.
Collateral
The home being purchased will be appraised to determine fair market value. If the appraiser states in the report that there is a health and safety concern, then a contractor's inspection or repairs may be needed. A home that is not in good condition may not be eligible for FHA financing.
Legal Disclosure*: 30 year fixed rate FHA loan-Interest rate 6.25% APR is 6.95%. Loan amount of $254,375 with no points and no junk fees. Includes upfront FHA mortgage insurance premium of 1.75% and monthly mortgage insurance at 0.55% of loan amount. Monthly principal and interest payment is $1,566.23 plus monthly MIP of $117 and you will also pay 1/12 of property taxes and homeowners insurance with the monthly payment. Assumes 96.5% loan to value (3.5% down payment). (As of 01/09/2024. Rates subject to change.)
We are here to help
Message us if you have additional questions, would like to get Pre-Qualified, or would like a quote. Let First Equity be your guide through the loan process.