What is a FHA Loan?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially for first time home buyers because they allow down payments of 3.5%, allows limited credit history, and is less strict on income requirements.
Who qualifies for a FHA loan?
Contrary to popular belief, FHA is not limited to first-time homebuyers. Anyone can use the FHA loan program if they meet the credit, income, and asset requirements. FHA loans credit requirements are less strict than Conventional loans so it can be a good option for buyers with limited credit history or with a less than perfect credit history. FHA loans allow higher debt relative to income than Conventional loans so a buyer lower income or high consumer debt will often qualify for FHA when a Conventional loan is not an option.
What are the credit, income, and asset requirements for a FHA loan?
While these requirements can vary depending on a buyer’s situation, FHA loans generally a better fit for buyers with less than perfect credit, lower income, and limited assets. FHA loans will allow a credit score as low as 580 to qualify. Income requirements vary based on credit and assets. FHA loans will usually allow a buyer with no asset reserves as well though asset reserves can help if income is low or credit is not the best.
What if my credit is not the best?
Though FHA loans do allow lower credit scores, not all buyers will meet these requirements. After completing an application, I can do a credit analysis and see there are adjustments that can be made to get a buyer where they need to be. Even if a buyer meets the credit score requirements, I will still run a credit analysis to see if we can improve a buyer’s situation and get better loan terms.
What if my income is not high enough?
Though Conventional loans now offer co-signers, FHA loans were the first program to allow non-occupying co-signers to help qualify a buyer. This is an excellent option for someone just starting their career and needing help from a parent or close relative to get in their first house.
What if I do not have enough money to put down?
FHA loans also allow a gift from a parent or relative. There are grant programs as well under certain conditions. Like Conventional loans, FHA loans have a list of approved source of assets and a list of sources that cannot be used towards the cash needed to close. It is important to discuss options with a loan officer before starting a home search.