In 2020, the Federal Housing Administration endorsed over 1.3 million mortgage loans to homeowners. While FHA loans are extremely common, many prospective homeowners don’t always know the finer details.
So what should you look out for if you’re getting an FHA loan? What should homeowners be aware of before getting an FHA loan for their mortgage?
That’s what we’re going to look at today. Read on to find out the 5 crucial things to know before getting an FHA home loan.
1. What an FHA Loan Really Is
The FHA loan program is designed to allow first-time or repeat home buyers to finance their homes without breaking the bank. It backs single-family home mortgages used as a primary residence.
The federal government insures FHA loans, meaning those looking for smaller down payments and lower credit scores qualify. This means those with lower incomes can still qualify for these loans.
That being said, there are several FHA loan requirements that applicants must meet. Let’s break some of those down in the next segment.
2. All the FHA Loan Requirements
FHA borrowers must put at least 3.5% worth of down payments. For a $300,000 home, that equals about $10,500. Buyers also need a credit score of 580 to qualify for FHA loans.
Their DTI, or debt-to-income ratio, can be as high as 50. However, lenders look for a DTI of about 43% to 45%. These loans also won’t apply to homes used as vacation homes or investment properties.
An FHA appraiser will also check the house you have to buy to see if it meets FHA property requirements. Depending on the area your home is in, there might be a mortgage limit.
3. FHA is NOT a Mortgage Lender
Something that’s crucial to know is that the FHA is NOT a mortgage lender. They are instead mortgage insurers, meaning they provide mortgage insurance to banks and lenders, like Trinity Oaks Mortgage. The FHA reimburses lenders for portions of their losses if the house goes into foreclosure.
As such, FHA and FHA loans help lenders extend credit to specific individuals. Lower-income families or borrowers with lower credit scores can therefore purchase homes.
4. Not Just for First-Time Buyers
As we’ve mentioned before, both first-time and repeat homebuyers can apply for FHA loans. It’s often marketed for the former, but seasoned homebuyers can use these loans as well.
However, FHA loans are only used for primary residences. This means repeat buyers can’t use these loans for second homes. That said, the FHA will provide mortgage insurance for any primary residences.
5. No Income for Geographic Limits
Unlike other loans like VA loans that are only offered to military buyers, FHA loans are open to anyone. There are no income requirements nor are they region-locked in any way.
So long as borrowers meet the FHA requirements we listed above, they’re most likely eligible for FHA loans. The down payment can even be gifted from other family members, government programs, or employers.
Obtaining an FHA Loan
Whether you’re a first-time buyer or not, securing an FHA loan can make the entire process much more affordable. Use this guide to help you understand the finer details of FHA loans.