An FHA loan is a Government Backed Mortgage insured by the Federal Housing Administration (FHA). FHA loans require lower down payments, lower minimum credit score, and income requirements to qualify. Very popular with first-time homebuyers for many reasons.
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What are the Advantages of FHA loans
Unlike other conventional loans, if you have a lower credit score, this type of loan could be ideal for you. With an FHA loan, you can purchase a home with as little as 3.5% down. Also, the down payment can be gifted from an acceptable gift/donor.
You can qualify for an FHA loan with a credit score as low as 500 with a 10% down payment. To be eligible for the maximum financing of 96.5%, you need a credit score of 580 or higher and a 3.5% down payment. (Private Mortgage Insurance is required).
What are the FHA loan requirements?
To be eligible for an FHA loan, borrowers must meet the following lending guidelines and requirements:
The mortgage loan can apply only for your primary residence.
Your front-end debt ratio (monthly debt payments, excluding a mortgage) should not exceed 31% of your gross monthly income. Lenders may allow a ratio of up to 40% in some cases.
Your back-end debt ratio (mortgage, plus all monthly debt payments) cannot exceed 43% of your gross monthly income. Lenders may allow a ratio of up to 50% in some cases.
You must make a down payment of at least 3.5% of the purchase price.
Down payment can come from an acceptable verified gift from a relative or government program.
A minimum FICO score of 500 to 579 with a 10% down payment or 580+ score with a 3.5% down payment.
Steady employment history, or you have worked for the same employer for at least two years.
Your income must be verified through pay stubs, bank statements, and federal tax returns.
An FHA-approved appraiser must appraise the property and meet HUD property guidelines.
You must wait at least two years after the discharge date of a Chapter 7 Bankruptcy. The discharge date should not be confused with the date bankruptcy was filed.
A lender can consider approving an FHA loan application from a borrower who is still paying on a Chapter 13 Bankruptcy. The payments must have been made and verified for a period of at least one year.
Any foreclosure within the previous three years typically will not qualify. (Lenders may make exceptions with extenuating circumstances.)
Delinquent tax debt is ineligible unless you are currently in a repayment plan. Repayment Plan Tax liens are not required to be paid in full if documentation is provided, indicating you are in a valid payment plan.
What are the FHA loan limits for 2019?
For 2019, the maximum loan limit for FHA loans in high-cost areas is $529,000, and the minimum limit in low-cost areas is $314,827. FHA updates limit amounts each year in response to changing home prices.