4 Ways to Get Approved for an FHA Loan
When purchasing a home, you may be unable to provide up-front cash. So, to make sure you’re eligible for an FHA loan, review these tips.
For many years, the Federal Housing Administration was regarded as a destination for borrowers with low to zero credit scores. However, the same cannot be said about the department today. The FHA is now a go-to-place for moderate-to-low income workers with good credit histories.
With a low credit score, you may not be eligible to apply for a loan in a conventional financial institution. However, you may still qualify for an FHA loan.
1. Credit Score and FHA Loans
If you don’t have a credit score, you do not qualify for FHA loans. Your credit score needs to be at least 580 for eligibility purposes. When your credit score is at least 580, your down payment can be reduced to 3.5%. However, due to the pandemic, most FHA loan lenders revised their credit scores and adjusted them to a higher number. Therefore, it would be wise to increase your credit score to their minimum requirement before you think of applying for the FHA loans.
2. Down Payment Funds
Your down payment depends on your current credit score. As noted above, if your credit score is within the required minimum, you only have to cough up 3.5%. However, having a lower credit score shows that you are a more risky investment and you’ll likely be given an FHA loan at a high down payment of 10%. You don’t have to rely on your savings to make the down payments solely though. You can also receive gift money, in which your donor provides an official letter and contact information to back up the loan.
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It would be wise to increase your credit score to their minimum requirement before you think of applying for the FHA loans.
3. Debt-to-Income Ratio
Your gross income should be enough to cover your initial investment, including the FHA loan, without surpassing a 50% mark. You need to ensure that your payments, including your taxes, car and student loans, insurance, and other costs, total at most 43% of gross income.
4. Mortgage Insurance
When applying for an FHA loan, you’re expected to pay an upfront mortgage premium (approximately 1.5% of the loan). However, when the mortgage payment falls below 78% of your home’s value, and you have been consistent in the payment for at least five years, the premium will be lifted. Also, you’ll need to pay an annual mortgage premium.
FHA loans are especially common among first-time homebuyers. These loans offer homeowners a great way to finance their homes and get the stability they need!
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Your gross income should be enough to cover your initial investment, including the FHA loan, without surpassing a 50% mark.
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We´re here to give you the best guidance so you can accomplish your dream of becoming a homeowner.
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This article was originally published by Lizzie Weakley in RISMedia Housecall