FHA, which stands for the Federal Housing Administration, is a United States government agency which insures home loans for FHA approved lenders.
One of the best tips for buying a house is to fully understand all the financing options that are available to them. As a buyer is trying to determine which type of mortgage is the best, they must weigh the PROs and CONs of each option.
In this article you’re going to learn what the PROs and CONs of FHA home loans are., a buyer puts themselves in a much better position to make a smart decision when it comes to their home financing.
What Are FHA Home Loans?
FHA has been helping people become homeowners since 1934. FHA is part of the HUD, which stands for Housing and Urban Development. One of the biggest reasons why FHA home loans are popular nowadays is because they allow buyers who don’t have boatloads of money saved for a down payment to still buy a home.
How To Determine If You Qualify For FHA Home Loans
It’s critical to understand when obtaining financing for a home that there are general guidelines a lender follows, also referred to as mortgage overlays, but there is certainly flexibility depending on a buyers individual circumstances.
Below are some general mortgage overlays that lenders will use to determine a buyers eligibility for an FHA mortgage.
- Lenders prefer to see a minimum credit score of 620, however, FHA does allow a buyer with a 580 credit score to qualify for a home loan, subject to other requirements.
- FHA home loans require a minimum of a 3.5% down payment.
- Lenders prefer to see a buyer with a debt-to-income ratio of 43% or less. In some cases, FHA allows a buyer to be manually approved with a debt-to-income ratio as high as 55%. Buyers with debt-to-income ratios higher than 43% can be approved through the AUS (automated underwriting system).
These guidelines above are very basic.
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