Tips for Getting an FHA Loan
The FHA loan was established to help first-time homebuyers and citizens with limited incomes obtain housing assistance loans at affordable rates. Unlike conventional loans, these government-backed loans offer low down payments for credit scores as low as 580. However, applicants must meet FHA loan requirements before receiving approval from any lenders. These requirements are fairly strict and lengthy. They include passing property inspections by HUD-approved appraisers as well as a particular kind of mortgage insurance.
In order to ensure that you get approval for your loan, there are a few steps you can take. For example, it is important to make sure your credit and debt ratio are up to FHA standards. If your credit and/or debt ratio do not meet the standards, you must make improvements to your finances before you apply. For help with your down payment, you can take advantage of down payment assistance programs available in your area. You can learn more about this and find other helpful tips for securing your home loan below.
- Pay attention to your credit score. FHA loans do not require the same level of credit as most conventional loans. The aim of this program is to help homebuyers with lower credit to secure loans with manageable down payments. In any case, that does not mean any credit score is accepted. Credit scores over 580 are eligible for a 3.5 percent down payment, but scores below that require down payments of at least 10 percent.To take advantage of the lowest FHA down payment, you must make sure your credit is at the right level before you apply. One way you can make improvements on your credit score by paying your bills on time and staying below your credit card limit. This is one way that home buying and looking for apartments for rent are similar. Both encourage a good credit score for housing assistance.
- Get help with your down payment. There are a few options available if you need help making your down payment. As a first-time homebuyer, you may be eligible for down payment assistance through your state or city. Different government subsidized housing grants are available throughout the country, so it is important to explore the options offered near you.
As long as you meet the necessary qualifications, these affordable housing grants can help you with most or all of your down payment. If you receive grants, you are not required to pay them back. In addition, FHA guidelines also allow you to use verified monetary gifts from family or friends towards your down payment.
- Use a mortgage calculator. This tool can help you estimate the cost of your monthly mortgage payments so you can make adjustments as needed. For easy access, these calculator tools are available online through different financial institutions. To use one, you must provide information about your loan, including your down payment amount, interest rate, and loan term.
Some calculators factor in additional details as well, such as home insurance and monthly homeowners association fees. These tools are helpful because you can use them to calculate your payments based on the minimum down payment for a house, or adjust the equation for a higher down payment. That way, you are able to weigh your options and create a payment plan that fits your circumstances.
- Research HUD property guidelines beforehand. Prior to getting approved for an FHA loan, the home you select must receive approval from the U.S. Department of Housing and Urban Development (HUD). As such, the HUD must appoint a licensed appraiser to conduct an inspection of the property.
During this inspection, the appraiser determines whether the residence meets health and safety standards. The appraiser also verifies the market value of the home, to ensure that it is offered at a fair price. That way, the lender can ensure that the FHA down payment is accurate and manageable. To avoid any issues with this process, keep HUD standards in mind when choosing a property.
- Shop around for the right FHA lender. Not all lenders offer the same FHA mortgage rates, and most have their own standards for evaluating loan applications as well. In other words, some lenders may be more lenient than others when it comes to calculating your debt ratio and finance rate. Each lender also sets its own interest rates and fees, known as origination charges. So some may offer low interest home loans, while others may not.
Aside from general FHA loan requirements, you must also take the policies of your lender into consideration. You can do this by obtaining a loan estimate from multiple lenders before deciding which one to borrow from. Make sure to examine the estimate thoroughly so you understand all of the fees, interest rates and other costs rolled into the loan.
- Create a plan to pay off your debts. According to FHA guidelines, your debt ratio on the front-end cannot should no more than 31 percent of your gross income, approximately. On the back-end, your debt ratio limit is 43 percent. Occasionally lenders may raise these limits, but only under certain circumstances. Regardless, it’s better to have your debt under control before taking on a loan.
In order to ensure that you get the best FHA mortgage rates, you need to thoroughly examine your current finances. Before you apply for a loan, calculate your debt to make sure it does not exceed FHA affordable housing limits. If your debt ratio is at or near either limit, it is a good idea to address this issue before submitting a loan application. Create a plan to start tackling your debt, even if it is only in small amounts in order to boost your chances of getting a loan.
- Consider homeownership counseling. If you have never purchased a home before, the process can seem daunting. Failure to properly prepare yourself may make keeping up with your FHA loan requirements more difficult. However, homeownership education and counseling can prepare you for the entire home buying process. These programs cover a variety of topics, from choosing the right home to budgeting for your payments and rent to own.
First-time home buyers especially can benefit from these subsidized housing assistance services, because they can make the process of buying less overwhelming. In fact, many government down payment assistance programs require enrollment in homeownership education to obtain benefits. With this in mind, the HUD offers certified housing counselors to walk you through each step and make sure you are set up for success.