The world of loans and mortgages can be a bit tricky to understand the first time around, especially for those either unaware of the process behind loans or getting around to buying a home for the first time. Thankfully, we at Mortgages Done Right Inc. are here to help you with just about any question you may have within the world of mortgage, and this blog is to be one of many ways we can formally explain and inform about certain types of terminology you may encounter with mortgage firms like us. In today’s entry, we’ll be looking over Federal Housing Administration loans, or as it’s better known in its shortened name; the FHA Loan.
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, or FHA for short. Often popular with first-time homebuyers, FHA loans require lower minimum credit scores and down payments than many conventional loans. Although the government insures the loans, they are offered by FHA-approved mortgage lenders. It’s important to note that the Federal Housing Administration doesn’t lend you money for a mortgage. Instead, you get a loan from an FHA-approved lender, like a bank, and the FHA guarantees the loan. Some people refer to it as an FHA insured loan, for that reason.
If you’re looking to be eligible for an FHA loan, you must meet these following guidelines:
- FICO score of 500 to 579 with 10 percent down or a FICO score of 580 or higher with 3.5 percent down.
- Verifiable employment history for the last two years.
- Income is verifiable through pay stubs, federal tax returns and bank statements.
- Loan is used for a primary residence.
- Property is appraised by an FHA-approved appraiser and meets HUD property guidelines.
- Your front-end debt ratio (monthly mortgage payments) should not exceed 31 percent of your gross monthly income. Lenders may allow a ratio up to 40 percent in some cases.
- Your back-end debt ratio (mortgage, plus all monthly debt payments) should not exceed 43 percent of your gross monthly income. Lenders may allow a ratio up to 50 percent in some cases.
- If you experienced a bankruptcy, you must wait 12 months to two years to apply, and three years for a foreclosure. Lenders can make exceptions on waiting periods for borrowers with extenuating circumstances.
At the end of the day, these are the takeaways to learn from when it comes to FHA loans.
- FHA loans are issued by approved banks and lending institutions, who will evaluate your qualifications for the loan.
- These loans do come with certain restrictions and loan limits not found in conventional mortgages.
- FHA loans are federally backed mortgages designed for low-to-moderate income borrowers who may have lower than average credit scores.
- FHA loans require a lower minimum down payments and credit scores than many conventional loans.
That’s the end of this blog entry for the day, but we hope that this blog helped make sense of just a small part of what makes up mortgage loans and real estate. There will be more blogs like this soon explaining further topics like this, be it about loans or something else within the mortgage/real estate world. From the team at Mortgages Done Right Inc, have a lovely day.