What is a FHA loan?
The Federal Housing Administration, also known as the FHA, insures loans. The government backs these. FHA loans have fewer lender requirements than conventional mortgages.
FHA loans are easier to qualify for and have lower down payment requirements. Borrowers can obtain a mortgage by paying as little as 3.5%.
FHA loans do have some drawbacks. The borrower must pay mortgage insurance throughout the entire loan term. This extra cost can accumulate over time. FHA charges an upfront fee of 1.75% at the time of loan origination.
The FHA loan can be a good choice for those who cannot pay at least 5% down, have credit problems that make it impossible to qualify for a traditional loan, or have a debt-to-income ratio too high for conventional loans.
FHA loans allow for the downpayment to be made using cash gifts from others and can be obtained sooner than other loans after bankruptcy or foreclosure.
FHA Loan Requirements
Not all home buyers will qualify for an FHA mortgage. In general, you need to have a two-year history of stable employment, no recent bankruptcy, a good credit rating, no recent foreclosures, and enough income to qualify for the loan.
FHA loans may not be the right choice for every home buyer. They have strict rules about what property can be bought, as well as monthly mortgage insurance fees and additional fees. FHA loans may not be the best option for someone who qualifies to get a conventional loan. FHA loans currently make up 5% of all mortgages in the US.
FHA Loan Limits
A FHA loan has a maximum amount. The maximum amount of the loan depends on the county in which the home will be purchased. On HUD’s FHA mortgage limits page, you can find out the FHA loan amount for your county. Select your state, type in your county, and click Send. If you plan to purchase a single-family home, you can find the maximum loan amount under the One Family column on the results page.
How do I get an FHA loan approved?
You should contact your lender if you are in a situation where you have no other option but to take out an FHA loan. You can find out if you are eligible for an FHA mortgage.
Once you have the necessary information and believe you are eligible, you can apply for a mortgage. Pre-approval is important. Pre-approval gives you an idea of what you can afford to spend on a house.
Find a house next. You can shop on your own or with a real estate agent. Just make sure you stay within the budget set by pre-approval. It would be best if you made any offer contingent upon your financing. This way, if your loan application is rejected for whatever reason, you won’t be financially obligated to buy the house you want.
Next, you will need to apply for a loan. Now is the perfect time to shop around for the best mortgage rates. You can get help from a real estate agent. But it would be best if you always compared several options before accepting the first one.
Appraisals, insurance, inspections, and other factors will be considered in the loan approval process. You can get the information you need by taking a First Time Home Buyer course with a housing counseling agency approved by HUD.
You will then close your FHA loan and become the owner of your house. You will sign important paperwork, perhaps at the office of your real estate agent, title company, or another location, before receiving the keys to the home. Understanding your loan documents, closing statements, and disclosures is important for responsible homeownership. You’ll receive information from your lender about how to make payments and copies of all signed loan documents.
