FHA loans are like the cool kids of the mortgage world. They’re backed by the government, The Federal Housing Administration (FHA) to be specific, and come with easier requirements compared to conventional loans.
Basically, they’re the friendly neighborhood option for folks who might not have perfect credit or a big wallet for a down payment. They’re super popular with first-time homebuyers because they offer a more accessible path to homeownership!
We are here to give you the TOP 5 Requirements for an FHA loan and what you need to know ahead of time, let’s get started on those big dreams of yours.
CREDIT SCORE
For FHA loans, your credit score can be in the 500’s, this is one of the BIG delineators in this program! If you are between 500 and 579, you’ll be looking at 10% down and if you are at least 580 or greater you could qualify with as little as 3.5% down!
Credit scores in this range aren’t stellar, a few items like late payments, high credit card balances, debt collections, bankruptcies, foreclosures or limited credit history can factor into things. This doesn’t mean you’re doomed and can’t qualify for a home loan again. FHA is all about second chances and making homeownership affordable!
STEADY INCOME
Imagine your income as the fuel for your mortgage engine. FHA lenders want to see that you’ve got a steady flow of cash to keep that engine purring.
Lenders are going to want to know your work history for the past two years, checking to see if you’ve been steady in the same line of work. They’ll dig into your pay stubs, tax returns, and confirm your employment.
Now, if you’re self-employed don’t sweat it too much. They’ll still want to see some proof that you’re bringing home the bacon on a regular basis. Basically, they’re looking for signs that your income on your tax returns is on the up and up. Show them that steady income climb, and you’ll be one step closer to unlocking that front door!
DEBT TO INCOME RATIO
We will want to make sure you’re not biting off more than you can chew when it comes to debt. Debt-to-income ratio (DTI) is what is calculated to check if you’re keeping things in balance. It’s like making sure you’re not trying to juggle too many balls at once.
The requirements for an FHA loan have been set at the DTI limit at 43%. Meaning, your debts combined are factored into your income, then they must calculate lower than that.
To figure out your DTI, you’ll want to tally up all your monthly debts – credit card payments, car loans, and the like that show on your credit report. Then, divide that by your monthly income before taxes. We can help with this, you don’t have to crunch the numbers on your own!
DOWN PAYMENT
One of the absolute BEST parts about the requirements for an FHA loan? That super low down payment of course! Remember, based on your credit score and the other factors here we’re looking at 3.5% to 10% down.
Now, when it comes to where you can grab those down payment dollars, FHA’s got some rules. They want to make sure the money is coming from specific sources, like your savings account, maybe some cash you’ve saved at home, or even investments you’ve cashed in.
Oh, and don’t forget about gift funds! Generally, FHA is good with gift funds from family members, like parents, grandparents, siblings, or even close friends who are practically family. Just as long as it’s not someone with a financial interest in the transaction, like the seller or your real estate agent.
PRIMARY RESIDENCE
Finally, the last requirement for an FHA loan we will talk about today is that the home must be your primary residence. The whole point of FHA loans is to help people become homeowners, especially those who might not qualify for traditional loans. The product is not available for rental or investment properties.
By focusing on primary residences, they’re encouraging people to put down roots and become part of a community. Promoting primary residence ownership, FHA is helping to strengthen communities and stabilize housing markets!
READY? LET’S GET STARTED!
FHA loans in Arizona are accessible and have more favorable financing terms and less stringent eligibility restrictions. As we all know, an FHA mortgage is a long-term commitment, just like any other home loan, so it’s helpful to know what you’re getting into and that’s where your local home lender can help you to get across the finish line.
Understanding the application, documents required, understanding the approval processes and timelines are so important. Mohave Mortgage is here with you every step of the way for FHA loans in Arizona. Get to know our team better on our about page here.
