FHA loans, are designed to help borrowers with low-to-moderate income access homeownership. They have more flexible terms including a minimum credit score of 500, a down payment of 3.5%-10%, and a debt-to-income ratio (DTI) of up to 50% under certain circumstances.
These loans are particularly popular among first-time homebuyers and may be helpful for people with limited savings or lower credit scores. Understanding the requirements is important for anyone considering an FHA loan.
Credit score requirement for FHA loans
FHA loans often have more flexible credit score requirements than other types of loans. Borrowers may have a minimum credit score of 500-580 depending on factors that include your down payment amount. Borrowers with a credit score of 580 or higher can qualify with a minimum down payment of 3.5%. For those with a score between 500 and 579, the down payment requirement increases to 10%. Lenders may have additional criteria, so it's wise to check with them for specific requirements.
Down payment requirements for FHA loans
FHA loans require a minimum down payment of 3.5% for borrowers with a credit score of 580 or higher. For those with a score between 500 and 579, the down payment is 10%. These payments can come from personal savings, gifts from family, or housing grants.
Debt-to-income ratio (DTI)
FHA loans allow for higher DTI ratios, typically up to 43%, and sometimes up to 50% with compensating factors like a large down payment or strong employment history.
Property requirements for FHA loans
A property that is financed by an FHA loan must meet the FHA Minimum Property Requirements (MPRs) for safety and soundness. An FHA-approved appraiser will evaluate the property to ensure it meets these standards and is worth the loan amount.
FHA Mortgage insurance requirements
FHA loans require mortgage insurance, including an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount and an Annual Mortgage Insurance Premium (MIP) paid monthly. MIP is required for the life of the loan.
FHA loan limits
FHA loan limits vary by county and are based on median home prices. These limits ensure the loans are used for affordable housing. Borrowers can find specific limits for their area on the FHA website or by consulting a lender.
Eligibility requirement for FHA loans
FHA loans are available to U.S. citizens and lawful permanent residents. The homebuyer must intend to occupy the property as their primary residence. Those who have experienced bankruptcy or foreclosure may still be able to qualify, with a two-year waiting period after certain types of bankruptcy and a three-year waiting period after foreclosure.
FHA home appraisal
The FHA requires a home appraisal, not just to determine the value of the home, but to also make sure that the home meets the safety standards mentioned above. This means that they include certain things like roof and crawl space inspections to find things like potential hazards like damage or problems with the electrical wiring.
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