There’s a lot that goes into the decision of buying a home. Whether you’re a first-time homebuyer or purchasing your next home, one major factor that’s a make-or-break deal for many is whether or not they’ll be able to finance the home.
Three major areas of concern for potential homebuyers are how much their credit score will impact their ability to qualify for a loan, how much of a down payment they’ll have to put down on the new home, and whether or not their income is enough to afford the monthly payments, along with other expenses.
Fortunately for potential homebuyers in Florida, Maryland and Virginia, MCS Mortgage offers FHA loans.
What Is an FHA Loan?
An FHA loan is a loan that’s insured by the Federal Housing Administration (FHA), which is part of the US Department of Housing and Urban Development. The way an FHA loan differs from other mortgage loans is that the FHA protects lenders against loss by providing them with insurance in the event that a borrower defaults on their loan.
The FHA insures mortgages on both single family and multifamily homes, as well as hospitals and residential care facilities within the United States and US territories. Another major difference between an FHA loan and other mortgage loans is that borrowers will also be responsible for paying mortgage insurance.
Is it Difficult to Qualify for an FHA Loan?
One of the major advantages of applying for an FHA loan is that it requires a lower minimum credit score than other mortgage loans and potential homebuyers are required to make lower down payments. This is ideal for first-time homebuyers, though all homebuyers can qualify.
Another major advantage of applying for an FHA loan is that homebuyers can still qualify for one, even if they’ve filed for bankruptcy in the past or have experienced other financial setbacks. Additionally, the FHA loan can also cover closing costs.
What Are the Requirements for an FHA Loan?
To qualify for an FHA loan, a homebuyer must have each of the following:
- Be of legal age and a legal resident of the United States
- Possess a valid social security number
- A steady employment history
- Must be at least two years out of bankruptcy with some exceptions
- Must be at least three years out of foreclosure with some exceptions
- Make a minimum payment of 3.5%
- Front-end ratio for mortgage payments (including HOA fees), property taxes, home and mortgage insurance must be less than 31% of gross income
- Back-end ratio for all other monthly debt (credit cards, car loans, student loans, personal loans, other mortgages, etc) needs to be less than 43% of gross income
- Property must be a primary home and not a second home or investment property
- Property must be appraised by an FHA-approved appraiser
How Much Money Do I Need to Qualify for an FHA Loan?
Qualification for an FHA loan requires a minimum down payment of 3.5%, which is determined by the homebuyer’s credit score. Credit scores range from 300 to 850, with 300 being poor and 850 being excellent. With proper documentation, down payments can be made with gift assistance, such as monetary gifts from family, friends and crowdfunding. Gift assistance, however, does not include personal loans or any other loan-type.
In addition to a down payment, FHA loan borrowers are also required to pay a mortgage insurance premium (MIP) to protect the FHA lender from losses. In cases where a minimum down payment of 3.5% is made, the required MIP payments will last for the length of the FHA loan. If a higher down payment is made, the required MIP payments can be reduced.
Are There Limits to FHA Loans?
Mortgage limits on FHA loans are determined by both state and county. Homebuyers can find out the FHA loan limits of their state and county by visiting the US Department of Housing and Urban Development website, and by contacting MCS Mortgage to learn more.