Buying a home can be one of the biggest investments you’ll ever make.
And while that means there’s a lot to consider, it also means many ways to save money.
This is where FHA loans come in.
With as little as 3.5% down and easier qualifying terms than conventional loans, an FHA loan could be just what you’re looking for in your next home.
This guide covers everything you need to know about how FHA loans work and how you can take full advantage of their benefits.
What Is An FHA Loan?
Looking to buy a home but don’t have the funds saved up for a large down payment? The best choice might be an FHA loan, backed by the Federal Housing Administration and run by the Department of Housing and Urban Development (HUD).
With low down payment options, more lenient credit requirements, and even the ability to roll FHA closing costs into your loan, FHA loans can make it easier than ever for first-time buyers to secure their dream home! Lenders will still approve you even if you’ve gone bankrupt or had a foreclosure.
What Is Needed for a FHA Loan?
Are you ready to join the club of becoming a homeowner? For your application to be accepted, you must have a FICO score of at least 580. This is because lenders use this number to determine your creditworthiness. The higher your credit score, the more likely you will be approved for a low-interest loan.
Don’t worry if your credit score doesn’t hit that benchmark. You could still get approved with a lower credit score, but you will have to put down 10% instead of 3.5%. Lenders also analyze your payment history, bankruptcies, foreclosures, and more, so make sure you keep up with those payments! Don’t let any of these factors stop you from achieving your goal.
At the end of the day, what an FHA loan means is that there are mortgage options that the government backs to help people with low-income levels and bad credit purchase a home.
Why Get an FHA Loan?
If you want to become a homeowner but need financial assistance, an FHA loan could be just what you need. This loan option is perfect for people with lower credit scores who cannot make a large down payment. It’s also great for borrowers who have high debt-to-income ratios that would prevent them from getting approved for a conventional loan.
If you don’t have great credit or can’t afford the hefty down payment required by most lenders, an FHA loan could be your best bet. Plus, you’ll only need to provide a small down payment so that it won’t put too much strain on your pocketbook!
How Do FHA Loans Work?
The Federal Housing Administration (FHA) provides mortgage insurance on loans issued by FHA-approved lenders. This type of loan can be used to purchase single or multi-family homes.
According to the U.S. Department of Housing and Urban Development (HUD), FHA mortgage insurance protects your lender if you cannot make your mortgage payments. To qualify for an FHA loan, you need to meet your lender’s requirements, such as having a minimum score of 580 and paying mortgage insurance premiums (MIP).
MIP is composed of two parts:
- An upfront premium payment at closing is typically 1.75% of the loan amount.
- An annual MIP may be paid monthly and depends on the loan amount, down payment, and loan term.
If you have paid at least 20% of your mortgage (or have 20% equity in the home), you can get your MIP canceled. To do this, you need to have an 11-year history of making payments while also putting down a 10% or higher down payment. Make sure you are up to date with your mortgage payments or have paid MIP for at least five years.
What Type of Loan is FHA?
FHA loans are backed by the government and are a great way to purchase a home with low down payment requirements and more relaxed credit standards. But did you know there are several different types of FHA loans available?
Here are some of the options that are currently available to you:
Fixed-Rate FHA Loan
This loan is designed to provide borrowers with predictable, stable payments throughout the life of the loan. The interest rate remains constant for the entire term of the loan, usually 15 or 30 years.
Adjustable Rate Mortgage
An ARM is similar to a fixed-rate mortgage in that it offers predictability and stability, but its interest rate can change periodically throughout its lifetime. With an ARM, borrowers can take advantage of lower interest rates over the first few years and switch to a fixed-rate loan when their finances improve.
FHA 203k Loan
This loan is designed for borrowers looking to purchase or refinance a home that needs repairs or improvements. The 203k loan allows borrowers to finance the costs of renovations into their mortgage, giving them an all-in-one solution for financing their homes.
FHA Energy Efficient Mortgage
This loan helps homeowners make energy-efficient home improvements, such as installing insulation and purchasing new appliances with energy star ratings. With the EEM, borrowers can directly finance up to 110% of the cost of improvements to their mortgage.
FHA Streamline Refinance
This loan is designed to help borrowers refinance their existing FHA loan to obtain a lower interest rate, shorten the term of their loan, or switch from an adjustable rate to a fixed-rate mortgage.
FHA loans can be an excellent way to finance your home purchase or refinance, but it’s important to understand the differences in each of these FHA loans.
Can Anyone Get an FHA Loan?
FHA home mortgage loans are a solid option for anyone who can qualify financially qualified! You don’t have to be raking in the big bucks to qualify, and no max income limits. Don’t let the misconception fool you – FHA loans aren’t just a last resort for people who can’t get conventional mortgages or those at an economic disadvantage.
The best part? They offer a low down payment option with good credit – perfect for those looking for more affordable financing options.
How Hard Is It To Get An FHA Loan?
Contrary to popular belief, FHA loans are not “sub-prime” and are often more economical and easier to get approved for than traditional financing options. You must show proof of your income and assets to get a mortgage. After closing, you don’t need to have any cash on hand.
Your lender will calculate your debt-to-income ratio (DTI) to determine your loan eligibility. This is done by adding up the total house payment (including taxes, insurance, and mortgage) plus any monthly payments on debts lasting 10 months or more.
For instance, if your entire house payment is $2,000 and you have $500 in other monthly debts with a gross monthly income of $5,000, your DTI would be 50%. FHA loans can be approved up to a DTI of 55%.
What Do You Need For An FHA loan?
To qualify for an FHA loan, you will need the following:
- A valid social security number.
- Income verification.
- An appraisal of the property you’re looking to purchase.
- Proof that you can afford your mortgage payments and closing costs.
- No delinquencies in the past 12 months on any credit obligations.
- At least two years of steady employment history with W2s or 1099 forms to verify income.
- A current credit report from a reputable agency such as Experian, TransUnion, or Equifax. Additionally, lenders may require that borrowers have at least three tradelines (credit cards or loans) open for no less than 24 months before applying.
Where Do I Get an FHA Loan?
FHA loans are given out by banks and other financial institutions that have been approved to participate in the FHA loan program. Many online lenders also offer these types of mortgages. You can search online, contact your local banks and credit unions to find a lender offering an FHA loan, or check the HUD website.
You may also want to talk with a real estate agent for more information about potential lenders in your area that they can recommend.
Once you’ve found possible lenders, comparing their rates, fees, and terms is essential before deciding which is best for you. Ultimately, the goal is to find the most affordable option that meets your needs.
How to Buy a House With an FHA loan?
Buying a house with an FHA loan can be both exciting and overwhelming. Here are the 7 steps to take when looking to buy a home with an FHA loan:
- Find a real estate agent who knows about FHA loans. Your agent should have experience in dealing with these types of loans and will be able to help you navigate the process.
- Research your options – there are several different types of FHA loans available, so it’s essential to do your research to find the best option.
- Get pre-approved – this is an important step as it will determine how much money you can borrow and give you an advantage when making home offers.
- Make an offer – once you’ve been pre-approved, it’s time to make an offer on the house you want to buy.
- Gather documents and submit your loan application – lenders require documents such as tax returns, bank statements, and proof of employment to process your loan.
- Get approved – if everything looks good on your loan application, you should be approved for the FHA loan.
- Closing the deal – the closing process is where all the paperwork gets signed and finalized, and your new home becomes yours!
With these steps in mind, buying a house with an FHA loan is a straightforward process that can help you get into the home of your dreams.
FHA Loan Income Requirements
To qualify for an FHA loan, you must meet specific income requirements. These requirements vary depending on where you live and your financial situation.
Generally speaking, you should have a minimum gross monthly income of two and a half times the amount of your mortgage payment each month. The total debt ratio (including any other mortgage payments) should be no more than 43 percent of your gross monthly income.
FHA Loan Down Payment Requirement
When considering applying for an FHA loan, the good news is that you only need to make a down payment and have more flexible credit requirements and lower closing costs than traditional mortgages.
Here’s the breakdown:
- You can put as little as 3.5% down on your home with an FHA loan.
- This makes it an excellent option for first-time homebuyers with limited savings.
- The FHA insures your loan, which may make lenders more willing to offer you a competitive rate.
Does FHA loans require a down payment?
FHA loans are widely known for their flexibility, and one area where they can be accommodating is the amount of a down payment you need to put down. While traditional mortgages often require a 20% down payment, FHA loans allow you to put as little as 3.5% down on your loan.
How much of a down payment is required for an FHA loan?
The amount of the down payment required for an FHA loan depends on your credit score.
This table references how much of a down payment is needed depending on your credit score:
| Credit Score | Down Payment (%) | Purchase Price | Down Payment ($) |
|---|---|---|---|
| 500-579 | 10% | $200,000 | $20,000 |
| 580+ | 3.50% | $200,000 | $7,000 |
As you can see, it pays to have a better credit rating. It’s important to note that the down payment requirement may vary depending on the specific lender, so it’s best to check with them directly before applying for an FHA loan.
Does the FHA loan limit include a down payment?
No, the FHA loan limit does not include the down payment. The FHA loan limit is the maximum amount you can borrow for your mortgage, which does not have any additional fees or costs associated with taking out the loan. This includes the down payment and closing costs of getting a loan.
If you are thinking about getting an FHA loan, you should always plan for these extra costs.
Can you finance a down payment with an FHA loan?
Yes, you can finance a down payment for an FHA loan. Although lenders do not offer an option with an FHA loan, there are mortgage down payment assistance programs that you can apply for. There are different loan requirements to get approved for a DPA loan, such as needing a 620 credit score. It’s always a good idea to shop around, as lenders have different requirements depending on where you are buying.
FHA Loan Credit Score Requirement
With an FHA loan, you can enjoy the benefit of a low down payment, flexible credit requirements, and lower closing costs – all while feeling confident in your decision.
Here’s the deal: if you have a credit score of 500 or above, you can put as little as 10% down on your home (with a little extra oomph, you can even put as little as 3.5% down if you have a score of 580 or above). And because the FHA insures your loan, lenders may be more willing to give you a shot, even if you’re not a financial superhero.
What are the credit requirements for an FHA loan?
Do you want to own a home but are worried about not having a perfect credit score or a long history of steady income? You can still make your homeownership dreams a reality with an FHA loan.
Here’s what you need to know: if you have a credit score of 500 or higher (and let’s be real, who doesn’t these days?), you’re eligible to apply for an FHA loan. And while your lender may want proof of your financial stability, like two years of verifiable work history and a steady income or assets, don’t worry – they’re not looking for perfection.
Stop renting and start owning with an FHA loan. Remember, even if you meet the basic eligibility criteria, your lender still has to approve you for the loan.
Can I still get an FHA loan with bad credit?
Yes, you can!
As mentioned above, the minimum FICO score you need to have for an FHA loan is 500, which does qualify you, but you will not get the best interest rates available, and you will have to make a down payment of 10%. If your credit score is below 579, it would be worth seeing if you can increase your score by however many points you need to get there before applying.
For example, if you wanted to buy a house worth $500,000, you would need to come up with a $50,000 down payment at 10%. If you had a score of 580 or higher, you would only need to come up with $17,500 at 3.5%.
FHA Home Loan House Requirements
Here are the types of homes that you can buy with an FHA home loan:
- Apartment, Condo, Townhouse
- Detached home
- Duplex
- Tri-plex
- Four-plex
- Fixer upper
- New build
There are many options for you in the types of homes you can buy with an FHA loan, but the house needs to be your primary residence. No vacation homes allowed.
FHA First-Time Homebuyer Loan Requirements
FHA home loans are an excellent option for first-time home buyers.
With more flexible lending requirements than other types of mortgages, you could qualify with a credit score as low as 580 and put down only 3.5%. Even those with lower scores, like 500, can get approved if they can make a 10% down payment.
Plus, FHA loan rates are typically lower than market rates, so you’ll also save money there! And don’t worry about income limits; even if you’re an average or above-average earner, you can still take advantage of this program. It’s never been easier to buy your dream home.
How to Qualify For FHA Loan
To qualify for an FHA loan, you will need to meet specific requirements set by the Federal Housing Administration.
These requirements may include the following:
- A minimum credit score of 500
- A debt-to-income ratio of no more than 43%
- A down payment of 3.5% – 10% of the purchase price of the home
- Proof of employment and income
- A valid Social Security number
- An appraisal of the property you plan to purchase
You must also meet the FHA home loan program’s eligibility requirements. For example, some FHA loan programs have specific requirements for first-time home buyers, while others may be available to homeowners who want to refinance their current mortgage.
It’s a good idea to work with a lender who can help you determine if you meet the requirements for an FHA loan and guide you through the application process.
How Much Do I Qualify For FHA Loan?
We can help guide you through the process and ensure your new home is within reach.
For example, if you want to buy a home worth $500,000, an FHA loan would cover $482,500, leaving you to come up with just $17,500 out of pocket. And because the FHA insures your loan, lenders may be more willing to offer you a competitive rate, even if you have less-than-perfect credit.
Remember, these are only general guidelines – the maximum loan amount you can get will depend on your circumstances.
Work with us to determine how much you can borrow based on your situation.
Who Is Eligible For an FHA Loan?
Anyone who meets the eligibility criteria for an FHA loan can apply for one.
This includes first-time homebuyers, low- and moderate-income individuals and families, veterans, and those with less-than-perfect credit.
The FHA loan program is designed to make homeownership accessible to many types of borrowers.
What Are The Qualifications For an FHA Loan?
How To Get Approved For an FHA Loan?
- Meet the basic eligibility criteria set by the Federal Housing Administration (FHA), including having a valid Social Security number, being a U.S. citizen or permanent resident, and having a steady income and employment history.
- Meet the credit score and debt-to-income ratio requirements the FHA sets, which are typically lower than conventional loans.
- Provide the required documentation, including proof of income, employment, and assets, as well as a down payment and closing costs.
- Submit a loan application to an FHA-approved lender and wait for a response. The lender will review your application and determine whether you are eligible for an FHA loan.
- If approved, the lender will provide you with a loan estimate and terms, and you can accept or decline the loan offer.
- Complete the loan process by working with the lender to finalize the loan and closing documents and provide any additional required information or documentation.
- Once the loan is finalized, you can purchase the home using the FHA loan.
How Much Can I Get Approved For An FHA Loan?
Wondering how much you can afford to invest in your dream home?
The FHA has it all figured out! Established annually, the agency’s lending limits are set according to the type of residence and location—so no matter where you want to live or what kind of property suits your fancy, they’ve got a number for that.
| Property Type | Low Cost Area | High Cost Area |
|---|---|---|
| Single Family Home | $420,680 | $970,800 |
| Duplex | $538,650 | $1,243,050 |
| Tri-plex | $651,050 | $1,502,475 |
| Four-plex | $809,150 | $1,867,275 |
Get the most for your money by buying real estate near places where loan limits are high. Then you can start packing boxes with confidence.
Who Approves FHA Loans?
FHA-approved lenders approve FHA loans, typically banks, credit unions, and other financial institutions.
A financial institution must meet specific rules set by the FHA to become an FHA-approved lender. This insurance helps protect lenders if a borrower defaults on their loan.
To become an FHA-approved lender, a financial institution must get certified and show that it has the experience and skills to make and service FHA loans. Once the FHA approves a lender, it can begin offering FHA loans.
How Long To Get Approved For FHA Loan?
Generally, getting approved for an FHA loan takes up to 45 days, give or take.
The amount of time it takes to get approved for an FHA loan can vary, but with the right lender and a little bit of cooperation from you, it can happen faster than you think.
To speed things up, ask your lender for a checklist of documents needed to process your loan. That way, you can gather everything you need and avoid delays. And remember, the faster you provide the information your lender needs, the faster you can get approved for your loan and start moving into your dream home.
Here is our checklist:
- A completed loan application
- Proof of income, such as pay stubs, tax returns, and W-2 forms
- Proof of assets, such as bank statements and investment account statements
- A valid government-issued photo ID, such as a driver’s license or passport
- Information about your current debts and liabilities, including credit card statements, car loans, and student loans
- A copy of the sales contract or purchase agreement for the home you are buying
- An appraisal of the property you are buying to determine its value
- Any other documentation required by your lender to evaluate your loan application
Get started on your journey to homeownership today with an FHA loan and a little organization. Work with us to determine how much you can borrow and what you need to do to get approved quickly.
How To Get Approved For An FHA Loan?
Applying for an FHA loan is easy and can be a breeze with the right lender.
All you need to do is provide your lender with basic information about your income, employment history, monthly housing costs, and credit score. They’ll look at your situation and let you know if you qualify for the loan. Basically, they want to make sure you can handle the monthly payments.
Once you’ve given them everything they need, your lender will send you a mortgage loan commitment letter with all the details. This will include the amount of the loan, the interest rate, and any fees or closing costs.
Where To Apply For An FHA Loan?
Contact one of your local lenders offering FHA loans to get started.
Hint: We are an approved FHA local lender.
Final Thoughts
FHA loans offer endless options for everyone to live the American dream. Not only are they a good fit for folks with less-than-perfect credit, but they make a lot of sense for homebuyers and homeowners with excellent scores.
Frequently Asked Questions
How old can a house be for an FHA loan?
There is no specific age limit for houses that can be purchased with an FHA loan. However, the property must meet specific requirements to qualify for an FHA mortgage. For example, the house must be in good shape and meet certain safety standards. The lender will usually require a home appraisal to make sure the property is worth the loan amount.
Who provides FHA loans?
Banks, credit unions, and mortgage companies.
What does the FHA loan cover?
An FHA loan covers the purchase of a home, including repairs and renovations. The loan can also refinance an existing mortgage or improve the property’s energy efficiency.
Does FHA insure loans?
Yes, FHA does insure loans – one of the main reasons many first-time home buyers opt for an FHA loan. This means that should anything happen and you are unable to make your payments, the government has your back.
Who insures FHA loans?
The FHA does!
How much do FHA loans give you?
FHA loans can help you pay up to 96.5% of the purchase price, including closing costs and items you buy ahead of time.
Who provides the money for an FHA loan?
The lender that is funding the loan.
How do I know if I have an FHA loan?
Your best bet is to check with your lender. They are the ones who can tell you everything you need to know about your loan.
What are the terms of an FHA loan?
The terms of an FHA loan are specific to each borrower and can vary depending on factors such as the type of FHA loan, the lender, and the borrower’s creditworthiness.
In general, FHA loans are available with various terms, including fixed-rate and adjustable-rate mortgages, and with down payment options as low as 3.5%. FHA loans also typically have lower interest rates than conventional loans.
