Are you one of millions of Americans considering applying for a home mortgage, but don't know if you have enough equity to qualify for a loan? If you are then applying for a Federal Housing Administration (FHA) insured loan might be something you should seriously consider.
FHA insured loans have helped millions of Americans obtain home ownership for the first time in their lives ever since its inception in 1934. They are loans distributed by private institutions, but insured by the FHA. What that means is that the FHA will determine if you meet their requirements and will then insure your lender against any loss of the principle if you are unable to meet the terms of your mortgage.
If you think you may be eligible for a FHA loan then it's important to know some things before beginning the application process.
1. Who can give them?
Borrowers can only get FHA insured loans from institutions approved by the Department of Housing and Urban Development. There are many scammers out there, so it is recommended contact HUD and speak with a HUD-approved counselor before beginning any application process.
2. What are the requirements?
Borrowers must meet certain income, credit, and employment requirements before being approved for a FHA insured loan. You must also be able to pay a minimum down payment of 3.5 percent, which can be gifted to you by a family member.
Your "front-end ratio" (mortgage payment, property taxes, mortgage insurance, and homeowners insurance) can not be more than 31% of your gross income and your "back-end ratio" (mortgage plus the total of all your other debts) can not be more than 43% of your gross income.
To receive the maximum financing available, a borrower must have a minimum credit score of 580 and provide a down payment of 3.5%. Borrowers with lower credit scores can still obtain a FHA insured loan, but they have different rates and are given out on a case-by-case basis.
You must also be out of bankruptcy for two or more years and out of foreclosure for three years. HUD will grant exceptions on a case-by-case basis.
3. How do I apply?
The best way to begin the application process for a FHA approved loan is by going to the Department of Housing and Urban Development's website and conducting a search for their approved lenders. If you have any questions before beginning the process then you should contact the FHA at (800) 569-4287.