If you’re reading this, then you’re just one of thousands of first-time home buyers curious about how to qualify for FHA loans. But that’s probably not the only question you have about this type of mortgage. In this quick primer, we’ll cover the basics of these popular, federally backed mortgages. Hopefully, you’ll soon learn how to know if you qualify for an FHA loan or not.
So what exactly are FHA loans?
FHA loans are mortgages insured by the Federal Housing Administration, a federal agency that insures mortgage loans to help lenders reduce their risk (and to help Americans like you move into a new home). If a borrower does default on an FHA loan, then the lender is protected.
What are the requirements for an FHA mortgage loan? How do I find out if I qualify for FHA loans?
There are some basic requirements to qualify for FHA loans:
- Find a bank that’s FHA-approved in your region. The best banks in your city will most likely be FHA-approved.
- The home must be your primary residence.
- The Department of Housing and Urban Development sets maximum mortgage amounts in each city depending on the local housing market, so make sure the home you want to buy is within the federal limits for your area.
- Unlike other professional loans, there’s no minimum credit score required on FHA loans. Even so, you will need to demonstrate that you will be able to afford the monthly payments. That means any foreclosures in your past must have happened at least three years ago, and two years for bankruptcies.
- One of the reasons FHA loans are so popular? You only need to make a down payment of 3.5%.
- While you won’t have to pay private mortgage insurance, you will have to pay upfront and monthly insurance premiums to the federal government.
What are the benefits of FHA loans?
FHA loans are also popular because they’re available to both first-time and repeat home buyers. Plus, there are expanded financial qualifications and credit requirements for those with a complicated financial history. Other home buyers appreciate the fixed-rate terms; meanwhile, your mortgage company likes FHA loans because they’re backed by the government, vastly reducing their risk.
The only way to know for sure if you qualify for FHA loans? Find an FHA-approved bank or mortgage lender in your area. Be ready to provide a credit report, tax returns, and proof of income.