FHA home loans require lower minimum credit score, and you pay a much lower down payment.
An FHA insured home loan is considered one of the best loan choices available today for any home buyer seeking a low down payment combined with relatively easy qualifying standards. The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD).
FHA does not actually make the loan. The loan is actually funded by an approved FHA lender in conformance with FHA lending guidelines.
FHA simply protects the lender from loss in the event of borrower default. By guaranteeing the loan, FHA is providing a type of federal assistance which helps low and moderate income home buyers afford a home.
The FHA program was created in the 1930’s during the Great Depression as a tool to stimulate the US economy and stabilize the housing market. Since that time, many millions of low and moderate income borrowers have purchased or refinanced their homes using FHA loans.
Qualifying for FHA Loan
You can qualify for an FHA loan with a credit score as low as 500 with 10 percent down. To get FHA’s maximum financing, you need a credit score of 580 or higher and 3.5 percent down.
FHA borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
Advantages of FHA Loans
.. You can qualify with a lower credit score compared to other loans.
.. You can buy a home with a down payment as low as 3.5%.
.. If you already have an FHA loan, you can refinance with FHA Streamline to lower your interest rate.
.. You may qualify even if you’ve had financial difficulties in the past, like a bankruptcy.
.. You may be able to roll your closing costs into your loan.
FHA Loan Requirements
To be eligible for an FHA loan, borrowers must meet the following lending guidelines:
.. Down payment of at least 3.5% of the purchase price. The down payment can come from a verified gift from a relative or government program.
.. FICO score of 500-579 with 10% down or a FICO score of 580 or higher with 3.5% down.
.. Steady employment history or 2 years work experience with the same employer.
.. Income is verifiable through pay stubs, federal tax returns, and bank statements.
.. Loan is used for a primary residence.
.. Property is appraised by an FHA-approved appraiser and meets HUD property guidelines.
.. Your front-end debt ratio (monthly debt payments, excluding a mortgage) should not exceed 31% of your gross monthly income. Lenders may allow a ratio up to 40% in some cases.
.. Your back-end debt ratio (mortgage, plus all monthly debt payments) should not exceed 43% of your gross monthly income. Lenders may allow a ratio up to 50% in some cases.
.. If you experienced a bankruptcy, you must wait 2 years to apply. If you experienced a foreclosure, you must wait 3 years to apply. In the interim, you must also have re-established a positive credit history. Lenders may make exceptions on waiting periods for borrowers with extenuating circumstances.
Talk with Loan Officer (626) 701-4159