If you want to purchase a new home, you may find yourself with limited options due to your credit history or financial situation. The qualifications for a traditional home loan may prevent you from proceeding. You may also have difficulty coming up with the required down payment, which can be up to 20 percent of the total purchase price. If you struggle with any of these, an FHA loan could provide the perfect solution for you.
- What is an FHA Loan?
The term “FHA loan” refers to any loan with Federal Housing Administration (FHA) backing. The FHA insures these loans. Therefore, they are more secure than many private loans. Private mortgages are also often more difficult to obtain than FHA loans. That is because the FHA sets certain loan requirements to make borrowing easier for home buyers who otherwise cannot qualify for home loans.
- What is the Credit Score Requirement for an FHA Loan?
The credit score requirement for an FHA loan differs significantly from the credit score requirements for a traditional mortgage. Traditionally, a credit score of at least 620 is recommended for mortgage approval. However, you can qualify for an FHA loan with a credit score as low as 500. Although, a score of 580 is recommended for the lowest possible down payment requirement.
- What Are Some Other FHA Loan Requirements?
Every type of home loan has certain specializations and eligibility requirements. FHA loans are commonly thought of as only available for first-time home buyers. However, that is not the case.
They are more popular among first-time home buyers, but they are available to any qualifying applicants. Actual requirements for FHA loans include:
- Debt-to-income ratio of less than 43 percent
- Proof of employment
- Steady income
- Must be the primary residence of the borrower
- How Are FHA Loan Amounts Determined?
The limit is determined by your specific circumstances. It is based on your credit history, as well as the appraisal of the property you wish to purchase. The local housing market may also influence how much you can borrow at a given time.
- Can You Pay an FHA Loan Balance Back Early?
When you take out a traditional home loan, you must pay it back according to a set schedule. Paying it back early may result in paying extra fees.
An FHA loan has a set loan period assigned to it. That period is typically either 15 or 30 years. However, there is no rule preventing you from or penalizing you for paying the balance back early.
- How Do You Get an FHA Loan?
Most banks and credit unions offer home mortgages. However, not all of them offer FHA loans. When you are ready to apply for such a loan, you must do so through an approved lender. Check local banking institutions to see which ones are FHA-approved.
After you choose a lender, you must fill out an application. You must also submit to a background and credit check. Once you receive approval and can access the loan funds, you can complete your home purchase.