What is FHA Loan Requirement and How to Apply

Last Updated on April 9, 2022 by

Do you know that you can buy your dream house even if you don’t have the full payment for it? Yes you can with a plan called Federal Housing Administration(FHA)

The FHA allows mortgages to lend you to finance your home with a down payment with an interest as low as about 3.5% while conventional loans are about 20% for people buying their first home. This type of credit is backed by government mortgage loans that allow a person who is willing to borrow to become a homeowner.

The most qualified set of people for these loans are first-time homebuyers who haven’t saved enough for a large payment. It doesn’t even matter if the borrower had filed for bankruptcy or foreclosure, they may still be qualified

However, be sure to have a good credit score before you apply because you will be required to have at least a credit score of about 580 to qualify for the FHA 3.5% down payment program. In addition, if your credit score is less than 580, you will be required to pay a 10% upfront fee. This will allow the FHA to manage risk and continue to give access to others who are qualified.

In this article, we will be discussing everything that has to do with FHA loan, its requirements, benefits, and types of federal housing administration loans

What is FHA loan

The Federal Housing Administration(FHA) is one of the giants in the insurance industry across the world. The FHA allows low-income earners and moderate-income earners to purchase a house especially if they are just purchasing their home for the first time. They give mortgage insurance on loans by FHA-approved lenders.

The FHA only guarantee the loan and doesn’t in any way lend money for mortgage, but they make it easier for FHA approved banks to loan you money

FHA loan requirements

You must have the following credit score to qualify for FHA loans

FICO score of 580 and above for a 3.5% upfront fee
FICO score of about 500- 579 for a 10% upfront fee
Mortgage Insurance premium
Debt to income ratio less than 43%
The home must be the borrower’s primary residence
Proof of income and employment

It must be noted that the FHA credit requirements go beyond just your FICO scores, they also approve borrowers based on their payment history, bankruptcies, foreclosures, and other issues that can keep the borrower from paying on time.

What is a FICO Score?

The FICO score is a number that showcases the integrity of a potential borrower in terms of repaying loans. The FICO is a data analytics firm that utilizes consumer credit history collected from different accredited sources to compile their average score

This is usually reviewed and screened by lenders and is used in predicting if the borrower will pay on time

Benefits of Federal Housing Administration loans

Low-interest Rates

After being screened by the lenders and your credit score is equal to or higher than the requirement, you have a better chance of getting a lower interest rate on your loan

Easy to be eligible

Since the FHA gives out mortgages with lower requirements. It allows borrowers to qualify easily, people with poor credit scores are eligible too

Bankruptcy/ foreclosure

FHA loans are available to people who have filed for bankruptcy and foreclosure because it doesn’t affect the requirement. However, having a good credit score and strong payment history will increase your chances of being approved.

Limits on FHA mortgage

The limitations on FHA loans are listed below;

Low cost area FHA loan limit

single Single $420,680
Duplex $538,650
Triplex $651,050

Four-plex $809,150

high-cost area FHA Loan Limits

Single -$970,800
Duplex -$1,243,050
Triplex -$1,502,475
Four-plex-$1,867,275

Types Of FHA Home Loans

Below are the various types of FHA loans you can qualify for;

1.203(k) Mortgage Program

This is a type of mortgage that includes extra funds to cover miscellaneous expenses such as the cost of repairs, renovations and home improvements

2. Home Equity Conversion Mortgage

This is a reverse mortgage allows aged homeowners between the age of 62 and above to exchange their homes for cash

3. Energy Efficient Mortgage Program

This is a type of mortgage that includes extra funds to cover energy powered home improvements

4. Section 245(a) Loan

This is a type of equity mortgage that is designed to increase monthly installment to shorten the loan term

5. FHA Streamline

FHA streamline is for previous FHA loan borrowers with a few special benefits. You will have to refinance into a lower rate even if you owe more on your home than it’s worth.

FHA Loan Terms

The Federal Housing Administration Term lasts for about 15 to 30 years

Factors affecting FHA loan

Factors that can hinder you from getting approved for FHA loans or eligible include