The Federal Housing Administration (FHA) is a federal agency that sets standards for construction and underwriting in the United States. It also insures loans by private lenders for the purpose of building homes. The FHA’s mission is to improve housing conditions, provide a home financing system and stabilize the mortgage market.
A Well-Rounded Loan Search
Loans insured by the FHA have a number of requirements that borrowers must meet before they can be approved for an FHA-insured loan. Though these are viable loan options, prospective homebuyers may also wish to consider alternatives to FHA-insured loans when selecting a mortgage lender. The Magilla Loans search engine for loans can help connect borrowers with the right lenders during the loan search process.
If you are serious about securing an FHA-insured loan, here is what you need to know:
FHA loan requirements include requirements for the borrower, property and lender. The maximum amount of an FHA-insured loan depends on the type of home and location and is subject to change each year. The limit in 2018 ranges from $294,515 for a single-family home in low-cost areas to $679,650 in high-cost areas.
A FICO credit score of at least 500 is an essential requirement for an FHA-insured loan, although a higher score will reduce the minimum down payment you will need. A score of 500 to 579 will require a 10 percent down payment, but a FICO score of at least 580 will qualify you for a 3.5 percent down payment.
FHA-insured loans have no minimum or maximum salary requirements. However, you do need two established credit accounts, which may include loans. Additional requirements for the borrower include no delinquent federal debts or debts associated with past FHA-insured mortgages. Borrowers must also account for any cash gifts they use to put towards the down payment, which the donor must verify in writing.
Your total debt-to-income ratio must be no more than 50 percent to qualify for an FHA-insured loan. This value is the percentage of your total income that you are using to pay debts, including but not limited to the mortgage, minimum credit card payments, alimony and student loans. In other words, you cannot qualify for an FHA-insured loan if you are using the majority of your income to pay debts.
The FHA will rigorously inspect the property before approving a loan. The purpose of the inspection is to obtain an appraisal of the property’s fair market value and ensure the condition of the property meets the FHA’s minimum standards. The FHA also has rules to prevent the property from being used as an investment. For example, the property must be used as the principal residence for at least one of the borrowers, who must occupy the property within 60 days of closing. You cannot buy a property within 90 days of a previous sale, meaning you are not allowed to flip a property with an FHA-insured loan.
Lenders can impose additional requirements on FHA-insured loans and always have the final say on a loan, even when the FHA is willing to insure it. These requirements are known as “credit overlays” because there are additional credit requirements the lender lays on top of the FHA minimum requirements. Credit overlays typically include a higher FICO credit score or a lower debt-to-income ratio, which is an important reason to shop for multiple FHA-insured loans.
Is an FHA Loan Right for You?
FHA-insured loans are primarily intended for those with modest budgets, especially if they are first-time homebuyers. These loans have several advantages over conventional loans, including more lenient credit requirements, lower interest rates and a smaller down payment. However, the borrower must also pay for the mortgage insurance for the entire lifetime of the mortgage, including an upfront payment and a monthly premium that is included in the regular mortgage payment.
It’s important to know that other types of loans allow small down payments as well. For example, borrowers who have previously served or are currently serving in the military may qualify for a loan insured by the Department of Veterans Affairs (VA), which does not require a down payment at all. You may also want to consider a conventional mortgage with a low down payment if your credit score is high enough. The interest rate will probably be slightly higher, but you can cancel the mortgage insurance once your house has enough equity.
Connecting with the Right Lenders in Your Loan Search
Magilla Loans can save you a great deal of time when you perform a loan search to find the best loan, lender and terms for you. Loan officers will receive your loan request when you submit a loan request, eliminating the time that you would otherwise spend applying to and meeting with each lender. We also provide you with our patented MagChart™, allowing you to easily compare the lenders’ proposal, usually within 24 to 48 hours. These capabilities streamline the process of obtaining your loan so you can focus on moving into your new home. The best part? You will never be asked for your name, phone number or social security number when you begin the process.
Magilla Loans is not a lender, but we can match you up with FDIC-insured lenders who are interested in your type of loan. You may not realize that lenders typically focus only on certain types of loans at a given time. Once they fill their quota for a particular type, they shift their attention to another type to keep their loan portfolio balanced. Borrowers have historically been unable to determine which lenders are pursuing their type of loan. However, Magilla Loans allows you to connect with the right lenders who will be most likely to approve your application.
Once you select your lenders you can compare them across many factors to determine the best one for you. Visit Magilla Loans today to find out more about how we can help you get your next loan.