A Federal Housing Administration-insured mortgage can let you purchase a home with less-than-perfect credit and a down payment of as little as 3.5%. The backing of these loans by the government enables lenders to provide financing to applicants who may not qualify for conventional mortgages. Although the FHA program is popular with first-time homebuyers, you can use this mortgage even if you have previously purchased a home.
Easy Qualification Requirements
The main advantage of FHA loans is that they are simple to qualify for. To qualify for this loan, you must have a credit score of at least 580 and a 3.5% down payment. The following are the basic qualification requirements of an FHA loan:
- Credit Score
A credit score of 580 with two open tradelines is the essential qualification required for an FHA loan. If you have a high credit card balance, paying down the balance of your revolving accounts will pull your scores up. Although FHA loans only require a 580 score, it is highly recommended to have a score of 620 and up to get a more desirable interest rate.
- Income
Applicants must have a two-year verifiable work history and a stable income to be eligible for an FHA-insured loan. You must present pay stubs and tax records to your lender. These documents demonstrate that you have sufficient income and financial stability to pay your mortgage.
There is no minimum or maximum income requirement for an FHA loan. However, a debt-to-income ratio must be met. Your monthly mortgage payment must be 36% of your gross income. This is known as the front-end DTI ratio. Subsequently, all your debts, including the proposed housing expense, shall not exceed 45% of your gross income as the back-end DTI ratio.
- Assets
A down payment of 3.5% of the purchase price is required on all FHA transactions. However, the down payment may come as a gift from a family member, your employer, or any charitable institution. All borrowers must present their latest bank statements to show proof of funds to close on the loan.
An asset reserve is required depending on the borrower’s situation. A good rule of thumb is to have at least three months’ reserves. One month’s reserve equals one month’s mortgage payment.
Get Pre-Approved Before Shopping For A Home
You must get pre-approved before shopping for a home. A pre-approval letter shows the seller that your ducks are lined up in a row. The letter will show the maximum loan amount you qualify for, the interest rate on the loan, and the full term allowed.
Contact your nearest Texas FHA lender to start the path to homeownership!
