The Fundamentals of an FHA Loan - What to Know

Qualifying for an FHA Loan

To qualify for an FHA loan, you’ll need to meet a standard set of requirements along with any additional stipulations a lender may have. Before settling on a mortgage rate and loan terms, compare the capabilities of various FHA-approved lenders and your ability to meet their basic requirements, which may include the following.

1. Credit Score

The qualifying credit score under an FHA loan is 500. If your score falls anywhere between 500 and 579, you can still qualify with a larger down payment.

1. Down Payment

If your credit score is above 580, you can qualify for a down payment as low as 3.5%. However, the lower your credit score, the higher the expected down payment—usually up to 10%. Note that your down payment need not come exclusively from savings. You can also submit gifted funds so long as your donor provides a letter of authorization containing their contact information.

1. Debt-to-Income Ratio

To qualify for a DTI minimum of 50, your total monthly debt payments can’t exceed 50% of your pretax income. These include debts you aren’t actively paying and student loans in deferment. If you’re still subject to the later, FHA loan underwriters will usually include 1% of the loan’s total as a monthly payment. Inactive loans will make up 5% of your DTI calculation.

1. Property Approval

Whether purchasing a home or condominium, the property you’re purchasing will have to fall under FHA standards. This will include a home inspection, under which your prospective home may undergo two appraisals if applying for an FHA 203(k) loan. These appraisals are an “as is” and “after approved” process.

1. Mortgage Insurance

Built into every loan, you’ll have to make an upfront mortgage insurance payment and make monthly payments thereafter. If your down payment is less than 10%, you’ll make monthly payments for the entire life of the loan. If your down payment is at exactly 10%, your FHA mortgage insurance will last 11 years.

The Pros and Cons of FHA Loans

As with any loan plan, FHA loans come with their fair share of advantages and disadvantages.

Pros

1. Lower minimum credit scores for qualifications
2. Down payments as low as 3.5%
3. Debt-to-income ratios as high as 50%

Cons

1. Mortgage insurance lasts the full term of the loan when down payments are made under 10%
2. Properties must meet strict health and safety standards
3. Loan amounts can’t exceed conforming area limits

FHA Loans with HI Velocity Mortgage

Though the FHA has its set requirements, note that FHA-approved lenders’ requirements may vary depending on who you hire. As with any loan, it’s important to compare shops before coming to a final decision.

If you’re a first-time home buyer in Ewa Beach, consult with us at HI Velocity Mortgage to find a loan that suits your capabilities best. We work to simplify the mortgage process while pairing you up with the most suitable plan. Call us now at (808) 727-1055!