FHA Loans and Qualifications

Are you a first time home buyer?

Is your credit score a little less than perfect?

If you have answered yes to any of the above questions, then this is an article you will want to read. FHA loans can be a great option for first-time home buyers because they don’t require a huge down payment. Today, we are going to share with you what a FHA loan is and how to qualify.

What is a FHA Loan?

FHA stands for Federal Housing Administration and is a mortgage loan that is insured by the federal government. This type of insurance allows the lender to have a lower risk if the borrower defaults on their payments because the loan is insured by the government.

FHA loans have been around since the 1930s. Here is what Zillow said about the history of the FHA program:

“The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers.”

First, let’s take a look at some advantages and disadvantages to getting a FHA loan instead of a traditional loan.

Advantages of FHA Loans

The advantages of FHA loans are easy to see and include:

  • FHA loans are often the easiest loan to qualify for.
  • FHA loans require only a 3.5% down payment.
  • You do not have to have stellar credit to qualify for FHA loans.
  • If you decide to sell the home, the buyer has the ability to assume your loan.

Disadvantages of FHA Loans

There are a few disadvantages to this type of loan. FHA loans require that you to have 2 different mortgage insurance premiums.

  • The upfront mortgage premium or MIP: Regardless of your credit score, you are required to buy 1.75% of your loan either upfront when you purchase the home or this can be rolled into your monthly payments.
  • Annual MIP: This is not a yearly charge, but rather a monthly charge that is figured into your mortgage payment. This charge is based on the loan-to-value ratios.

Qualifying Requirements of FHA Loans

Here is a list of a few of the qualifying requirements for an FHA Loan:

  • A two year history of steady employment.
  • A down payment of 3.5%.
  • The property must be approved by an FHA-approved appraiser.
  • The cost to own the home including the mortgage, HOA fees, property taxes and mortgage insurance must be below 31% of your gross income.
  • All of your debt including your mortgage, your credit card payments and your student loans must be below 43% of your gross income.

If a FHA loan sounds like a good option for you and you are interested in starting the home purchasing process, please make sure to give our office a call. We would be honored to help you find your new house.