The mortgage application process is usually mumbo-jumbo for first-time home buyers. Whether it’s mortgage terms, down payment requirements, or the type of home loans available, all that information can be too much for a newbie to take in.
Out of all the available home loans out there, however, the FHA mortgage loan is one of the most popular options among those without stellar credit histories that even first-timers have heard of it. FHA loan is created by its namesake government agency to help make homeownership more accessible to the common man.
This article will tackle the basics of the FHA loan and how you can qualify for one.
FHA Guidelines for Borrowers
The FHA home loan presents newlyweds, recent graduates, and individuals who went through bankruptcy and foreclosure, a shot at owning their own home with less financial requirements.
As a program of the Federal Housing Administration, home mortgages under FHA loans are insured by the agency. It is this guarantee that allows FHA-approved lenders to offer home mortgages with more favorable terms.
This is not to say, however, that the FHA does not have any standards for loan qualification. While significantly more lenient than conventional loan requirements, FHA lenders require an applicant to have at least:
- FICO score of at least 580 to avail of the 3.5% down payment
- Debt-to-income ratio no more than 45%
- A steady source of income and employment
FHA loans require a Mortgage Insurance Premium, hence, the insurance against future default by the borrower. Moreover, the home has to be occupied as the borrower’s primary residence.
Those unable to make the 580 FICO score requirement may still try to avail of the loan, but at least 10% down payment is required.
Tips on Qualifying for An FHA Mortgage Loan
The FHA loan requirements may be more relaxed than most out there, but barely making the limit will not guarantee approval especially if you’re not in the best credit or financial tips. That said, here are some tips to help you better prepare for the application and qualification process.
Improve your credit score.
One of the hurdles that many first-time home buyers face is their low credit score. Some people may have a bad credit history due to unpaid bills, while others have insufficient or no credit history at all.
Whatever the reason may be, you’ll have to make a larger down payment or settle for a higher interest rate if your credit score is anywhere below 580. To get the most out of your FHA home loan, monitor and try increasing your FICO score before applying. If you think it’s necessary, take extra measures like paying your bills with your credit cards or taking care of your financial obligations on time.
Save Enough Money For Down Payment and Closing Costs.
Having enough money for the down payment does not mean you’re financially ready for an FHA loan. Remember that you have plenty of other expenses aside from the down payment. There are closing costs and prepaid items to pay for.
If you need to move into a new home at the soonest possible time, but you’re unsure how to make the required payments, try looking for available down payment assistance programs. State and local government agencies usually offer Down Payment Grants to eligible candidate buying their first home.
Find an FHA-Approved Lender.
While all FHA mortgage loans are under the guarantee of the Federal government, they are not all the same. Lending companies may modify the requirements to their preference and have the last say on you the approval process. Suffice it to say, not all FHA lenders are the same.
For a pleasant FHA loan experience, don’t forget to shop around for the best FHA loan companies and only work with reputable lenders in your area.