FHA Loans

Have you been dreaming of home ownership but thought that obtaining a mortgage was impossible due to a less than perfect credit score or the fact that you have saved very little for a down payment? An FHA loan might be the ideal solution for you!

A growing number of home buyers are using government-insured FHA home loans because of the favorable terms that they offer, compared to other loan types.

FHA Loans have become so popular in today's lending climate because they can be much more accommodating than other mortgages. FHA Home Loans allow potential buyers to purchase a home with a super low interest rate and only 3.5% down but they do contain specific credit, income and property criteria for a mortgage to get approved.

What is an FHA Loan?

An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). Because the government insures FHA home loans, lenders take on very little risk since they know that the government is backing the loan should the borrower default. Since the loans are insured, FHA lenders are more likely to approve loans for applicants with less than perfect credit or with very little money to pay down.

To fund this obligation, the FHA charges borrowers a fee. Home buyers who use FHA loans pay an upfront mortgage insurance premium (MIP) of 1%. They also pay a modest ongoing fee with each monthly payment. If a borrower defaults on an FHA loan, the FHA uses collected insurance premiums to pay off the mortgage.

FHA loans allow the borrower to borrow up to 97% of the value of the home. The 3% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time buyers. Almost anybody can get an FHA loan. There are no income limits - like you may find with first time home buyer programs. However, there are limits on how much you can borrow. In general, you're limited to relatively small mortgage loans relative to home prices in your area. To find the limits in your region, visit HUDs Website.

There are some requirements, but they are much more relaxed than with conventional loans, so even if you have low or no credit, it is still possible to qualify for an FHA insured loan. Here are some of the requirements you will need to be aware about before you get started on the loan process.

Credit

All loans require a credit check on the borrower, and the FHA is no different. You credit score is a basic history of your financial past, and an indicator of how well you will be able to make payments in the future. While most conventional loans require that you have a strong score to qualify for a loan, the FHA is much more lenient. Even if you have no credit, it is still possible to qualify for a loan if you have a co-signor who has credit, even if they are not planning to live in the house.

Income

Your income level will be taken into account when applying for an FHA Loan. Even though the FHA is there to help low and middle-income families, they need to know that you will still be able to afford your monthly and annual payments.

Debt to Income Ratio

Your debt-to-income ratio takes into consideration your monthly or annual salary, and then subtracts your debts such as car payments, tuition, credit cards, etc. This number is a true representation of how much money you have left at the end of each month and how much you are then able to afford for mortgage payments.