When it comes to financing the purchase of a new home, the FHA home loan has for many years been a good option for many first time home buyers or potential homeowners looking to make a smaller down payment or with less than perfect credit.
In this article we will address some of the basics that any home buyer looking to purchase a home with an FHA home loan, should know.
Loan Type: When someone discusses an FHA home loan, they are referring to a Federal Housing Administration backed home loan, which is regulated by HUD (Housing and Urban Development). FHA home loans can only be used to purchase a primary residence.
Loan Amounts: FHA home loan limits will vary based on the county the property you are purchasing is located in. Currently in Maricopa and Pinal Counties, here in Arizona, the FHA loan limit is currently $271,050. To look up your county’s FHA loan limit you may go to: https://entp.hud.gov/idapp/html/hicostlook.cfm
Down Payments: The minimum down payment on an FHA home loan is 3.5%.
Mortgage Insurance: All FHA home loans have mortgage insurance associated with them to varying amounts based on loan term and down payment, but in general most home buyers using an FHA home loan to purchase a home are putting 3.5% or 5% down on the purchase of a home on a 30 year fixed loan. At a 3.5% down payment, there is a one-time upfront FHA mortgage insurance premium of 1.75% charged and an annual FHA mortgage insurance premium of .85%. At a 5% down payment, there is a one-time upfront FHA mortgage insurance premium of 1.75% charged and an annual FHA mortgage insurance premium of .80%.
Credit Scores: There is actually not a minimum credit score as set by HUD for FHA home loans, but in general most lenders will require a minimum of a 580 credit score for an FHA home loan approval.
Debt To Income Ratios: The debt to income ratio is another important part of qualifying for a home loan and refers to a ratio of your monthly gross pay versus your monthly payments. For instance, if you had a gross salary of $60,000 or $5,000 per month and all of your current payments that appear on your credit report (credit cards, auto loans, student loans, etc.) are $1,000 and your new potential mortgage payment is also $1000, then your housing debt to income ratio would be 20% ($1,000 / $5,000) and your total debt to income ratio would be 40% ($2,000 / $5,000). For FHA home loans, the guidance says that your housing debt to income ratio should be no more than 29% and your total debt ratio should be no more than 41%. However, it is often possible to receive an FHA home loan approval with ratio’s higher than this, if you have compensating factors, such as: steady job history a high credit score or additional assets.
Employment History: Lastly when it comes to qualify for an FHA loan, in general you want to be able to show two years’ work experience in the line of work you are currently in. It is ok to have switched jobs in the past two years, so long as the positions are in a similar line of work. In addition, if you graduated from college less than two years ago, the two year work requirement can be waived if your college experience was preparation for your current employment position.
These are just some of the basics of obtaining a FHA home loan, but at the same time, if you adhere to the standards above, then you stand a good chance of putting yourself in position to qualify for a FHA home loan.
As always, it is best to sit down with a licensed mortgage lender, such as Strategic Mortgage and fully qualify to see if you are ready to purchase a new home.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Strategic Mortgage – AZBK#0909514 - NMLS#158804 - Equal Housing Lender
Vasilios Bill Kamboukos Jr – NMLS#160440
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