It's a common problem to find yourself wanting to buy a property but struggling to find a lender to provide you with a mortgage. There are various reasons why a traditional mortgage may not be a good fit for you. It's possible that you have a limited credit history, or have suffered from credit problems in the past. It's also possible that you may simply be struggling to find enough money for a down payment given that, for many home loans, you are expected to have 20% of the purchase cost to put down upfront.
Whatever your reasons for applying, an FHA loan may be a good choice. These loans are insured by the Federal Housing Administration and have been in existence since the 1930s. Lenders are more likely to accept applications from applicants with a lower credit score, and an non-traditional credit history.
How an FHA loan is beneficial?
One of the biggest benefits of an FHA loan is that it's usually easier to be accepted for than a traditional home loan. If you have a credit score of 580 or higher, you only need to have a 3.5% down payment. The requirement increases to 10% if you have a credit score of 500-579. These low down payment amounts are an advantage to potential buyers who have a low to moderate income. However, even with less restrictions in place, there is still no certainty that an application will be accepted. There are still requirements that need to be met.
What requirements do you need to satisfy to be approved for an FHA loan?
Individual lenders may have their own requirements in place, so you can never be certain that you will be accepted for an FHA home loan. However, there are FHA income and loan requirements that it's worth knowing about as satisfying them makes acceptance more likely. These requirements include:
- Having current employment and a sound employment history.
- Being legally able to reside in the US.
- Making sure that the application is for a main home and not a vacation home or investment property.
- Making sure that an appraisal has been carried out, on the property to be purchased. This appraisal needs to be conducted by an FHA approved appraiser.
- Having a housing costs to income ratio of less than 31% and an all debt to income ratio of less than 43%.
FHA loans can certainly be a good option if you are struggling to get a traditional mortgage. However, although they may be easier to get than other home loans, this does not make acceptance a certainty. Lenders still want to protect their money, so the more you can prove that you are a good risk, the more likely you are to be successful with your application. For instance, the higher your credit score, the easier the application process is likely to be. This is why it makes sense to develop and repair your credit score, before you apply for a home loan.