If you don’t have enough money for the 20% down or the perfect credit score for your dream home, you don’t have to worry a thing! In this article, we have listed tips and details on how to get approved for an FHA loan.
FHA loans are pretty popular with first time home buyers with its low-down payment and credit score requirement. For this reason, it is considered to be one of the easiest mortgage types to get qualified for.
Here’s a simple guide to help you learn what you need to know about FHA loans El Paso.
What is an FHA Loan?
The Federal Housing Administration (FHA) is an agency in the government that’s created by the Department of Housing and Urban Development (HUD) in the year 1934. This was done in hopes of increasing the number of homeownership in America. The FHA agency ensures all of the loans provided by private lenders. It does not, however, offer mortgage loans directly.
Usually, borrowers need to pay mortgage insurance (MIP) every month of around 0.85 percent of the annual loan amount.
In case a borrower defaults on his or her mortgage, it is, and HUD will have to pay the remaining balance to the lender. Afterward, it will possess the property.
If you want to apply for an FHA loan, here are the requirements:
Borrowers who have credit scores between 500 to 579 are required to pay at least 10% of down payment. But it is rare for a mortgage lender to approve a borrower who has a credit score that’s below 580.
As such, the usual credit score requirement is 580 and above. In this instance, the down payment required is at 3.5% only.
If you find out that you have a credit score of below 580, try to do a thorough check of your credit history and have it fixed before applying for an FHA loan.
Other FHA Loan Requirements
Aside from the Credit Score, here are a few other requirements:
- The debt-to-income ratio at a maximum of 43% (sometimes 50%)
- An FHA appraiser should do the appraisal
- Mortgage insurance is required
- Two years of employment history
- Steady employment with recent tax returns as proof of income (others are W2’s and paycheck stubs)
- Two years of employment
- At least 18 years old
Who Should Get an FHA Loan?
For someone who wants to purchase a home, FHA loans are one of the best options to take. This is because the guidelines and requirements of FHA are a bit more lenient compared to other mortgages. Most people can qualify for one.
People who can get an FHA loan are:
- Borrowers who have a low credit rating
- A person who is receiving a down payment as a gift
- First-time homebuyers
- Anyone who can’t afford a huge down payment amount
- Someone who has a high debt-to-income ratio
All in all, FHA loans are great for a lot of home buyers. It’s one of the easiest to qualify for, has lower loan fees and offers lower interest rates. So, do you need a job? Yes, you do.