An FHA loan is a type of government-backed mortgage loan that allows you to purchase a home with less stringent financial requirements. If you have debt or a low credit score, you may be able to qualify for an FHA loan. Even if you have a bankruptcy or other financial issue on your record, you may be able to obtain an FHA loan.
In this article, we’ll look at FHA loans, their requirements, and whether an FHA loan is right for you.
What Exactly Is An FHA Loan?
The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development, backs FHA loans. The FHA insures FHA loans, which simply means that the organization protects your lender from a loss if you default, or fail to pay, on your loan.
FHA loans have low down payment options and lower minimum credit score requirements, but you must also pay mortgage insurance.
Although you don’t have to be a first-time home buyer to qualify, the option of a low down payment and more lenient credit requirements can make FHA loans particularly appealing for first-time home buyers. Here are some of the advantages of FHA loans:
- When compared to other loans, the credit score requirements are lower.
- Your lender may be willing to accept a lower down payment.
- If you have a bankruptcy or other financial issues in your past, you may still be eligible for an FHA loan.
- Closing costs for FHA loans are frequently rolled into the loan.
Requirements for FHA Loans
Borrowers must meet specific requirements to qualify for an FHA loan, which include:
- The home you’re thinking about buying must be appraised by an FHA-approved appraiser.
- You can only get a new FHA loan if the home you want to buy is your primary residence, not an investment property or a second home.
- You must move into the property within 60 days of the closing date.
- An inspection must take place, and the inspection must report on whether or not the property meets minimum property standards.
- There are some additional requirements to qualify, such as a down payment, mortgage insurance, credit score, loan limits, and income requirements. The FHA requirements for qualifying for a mortgage are largely the same for DACA recipients.
FHA Loan Limitations
There is a maximum amount you can borrow for an FHA loan, which is determined by the county where your potential home is located.
For 2022, the maximum FHA lending amount for high-cost areas (such as large metropolitan areas) is up to $970,800, according to the Department of Housing and Urban Development. Loan limits are determined by the county’s property values. These are the restrictions for single-family homes. Limits may be raised if you have multiple units.
On the FHA mortgage limits page, you can look up the FHA mortgage limits for one or more areas. The page also includes the median sale price for each neighborhood. According to HUD, these are the median price estimates used to determine loan limits.
Benefits of FHA Loans
- Easier Credit Qualifications
- Low Down Payment
- Some Closing Costs Can be Financed
- Shorter Time After Negative Credit
- More Lenient on Gift Funds
- Higher Debt-to-Income Ratio (DTI)
- More Affordable Mortgage Insurance
- Seller Paid Closing Costs Save Borrowers money
If a lender believes you are creditworthy, you can obtain a mortgage for a costly home. However, if you decide to apply for an FHA loan, keep in mind that the amount of money you can borrow on an FHA loan is limited. Loan limits vary slightly by county, depending on the cost of living. To know more about FHA home loans, visit Heritage Financial CU today.