Relevant Information on FHA Loan Requirements
With the recent economic meltdown, finding a lender to finance a mortgage seems to be very difficult. It certainly is commendable that the federal government has come to the aid of the citizens who may now look at the FHA loan schemes for the underserved. It would be imperative to know everything about the FHA loan requirements before applying for one. The primary advantage of the FHA loans is that the first time borrower may not be able to put up 20 percent of the value of the home as down payment and so the FHA loan would require a borrower to make a low down payment, a minimum of three percent towards down payments and closing costs of the identified property. It certainly would be heartening to know that the FHA loans are insured loans and the payments would include the mortgage insurance payments as well.
The FHA loans would be generally available to first time home buyers and one would need to fulfill some basic FHA loan requirements to qualify for a FHA loan. Some of the basic criteria for a FHA home loan would be that
● The applicant must have a valid Social Security number.
● The applicant must be legally of age that would allow the applicant to sign on mortgage documents in the applicant’s state.
● The applicant must be a legal resident of the United States of America.
The basic underwriting standards that need to be satisfied for a successful approval of a FHA home loan would be that the applicant would have to have a good and credible credit history, a low debt-to-income ratio, must be able to make a minimum of three percent as down payment and other closing costs. It would however be note worthy to remember that the FHA Secure program would provide loans as adjustable rate mortgage for those who may be at a risk of foreclosures.
One good thing in favour of FHA loans would be that individuals whose credit rating may have taken a beating in the recent past and who may have filed for bankruptcy two years ago, may also qualify for FHA loans. This would be because the lenders would not consider the individual’s traditional credit report alone but also would construct the person’s credit history on payments towards bills such as utility payments, rental payments and other payments that would not appear on one’s credit report. In case of a bankruptcy, if one would be regular and current on all payments, then one may qualify for a FHA loan. However, if one might have defaulted on a student loan payment, then the applicant would be disqualified.
One’s income would also be considered for the approval of FHA home loan. One shouldn’t have to spend more than 31 percent of one’s monthly income on the payment towards mortgage, insurance and property tax. Added to this cap, one shouldn’t have to spend more than 43 percent of one’s income on debt payments that would include mortgage, insurance, tax, credit cards, student loans and other debt. Another thing one might do well to remember is that, not only will the mentioned criteria have to be fulfilled, one would need to make sure that the value of the house being used as collateral would have to be at least 3 percent more than the loan. In case one would be able to shell out 20 percent towards down payment, it wouldn’t necessarily mean that one may get a higher amount of loan, but one may be able to purchase a more expensive home. In other words, the total amount that may be advanced as a loan would not be dependent on one’s ability to make higher down payments. The amount of loan advanced would be determined by the FHA loan limits for the area under consideration. It may be sensible to be aware of these limits applicable to the area where one would want to buy a home.
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Category: Finances
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