The Federal Housing Administration (FHA), the largest residential mortgage insurer in the U.S. backing many single family and multi-family home loans around the nation. The FHA was created in 1934 and has insured millions of properties since. It is worth noting that FHA itself does not provide loans , the back the loan offered by approved FHA lenders and banks. FHA home loans are basically mortgages insured by the FHA where the borrower pays for the mortgage insurance to get loss protection in case they default. Many lenders offer FHA loans at attractive rates and flexible terms, which is why they are so popular. Here is a look at the requirements for FHA home loans.
Basic Requirements
Note that the mortgage insurance is primarily available to borrowers who make less than 20% in down payment. Buyers should be able provide the following information in order to sucessfully be approved for FHA home loans:
- Address of primary residence or residences where you have been residing in the past two years.
- Name and location of the employer or employers you have worked for in the past two years.
- Gross monthly salary from the current job or jobs (monthly, weekly, yearly or hourly)
- Social Security numbers.
- Information relevant to checking and savings accounts and open loans.
- Complete information of currently owned real estate.
- Income statement (current) balance sheet (self-employed), and personal tax returns of the past two years.
Debt to Income Ratio
This ratio helps borrowers to determine the type of property that they can afford. The maximum debt to income ratio allowed to get approval can vary slightly from lender to lender, but is generally 32% for mortgage payment expense to income and 45% for total fixed payments to income.
Credit History
Your credit history plays a crucial role in the approval or rejection of your loan request. FHA home loans are generally closed for applicants with a decent record of timely payments, and no serious financial hardships in recent years. Buyers with a credit score of 620 or higher has a better chance of getting a low interest mortgage with less down payment as compared to an individual with a score of 580.
Maximum Loan Amount
The lending limits set by the FHA vary from county to county and state to state based on the medium home prices. The limits are updated on an annual basis. The type of residential property you intend to purchase will also affect the lending limit. Buyers can read more about FHA loan limits here.
FHA Loan Benefits:
FHA Easier To Qualify
Generally, it’s not easy to qualify for a conventional loan, typically because lenders are worried about the associated default risks. But unlike conventional loans, getting a loan approval for an FHA loan is much easier, because these are government-backed, which protects lenders against defaults. This makes it possible for lenders to offer loans with competitive interest rates, even to those borrowers who have a lower credit score. As these loans are insured by the government, their credit qualifying guidelines are much easier than most traditional loans as well.
Only 3.5% Down Payment
FHA loans have some of the lowest down payment requirements. TN home buyers only need to pay a 3.5 percent of the purchase price as down payment. This is great for buyers in non rural areas of Nashville, Memphis, Knoxville. It is significantly lower than the down payment required by traditional loans, which is between 5 and 10 percent. The only exception in certain rural locations in the Tennessee that are eligible for the 100% USDA Rural Housing loan. You can learn more about USDA mortgages here.
Very Low Interest Rates
FHA loans are available at very competitive rates, equating to a low payment every month. And low interest rate means that you’ll pay that much less in loan installments and can save thousands of dollars over the life of your mortgage. The FHA is known to offer extremely lower rates as compared to a 30 year fixed conventional loan that require much larger down payments.
Higher Debt-to-Income Ratio
If you have a high debt-to-income ratio, over 40% your loan request will probably be rejected for an conventional loan, but you can still apply for an FHA loan. FHA has more relaxed debt-to-income ratio limits. It allows borrowers to have a maximum debt-to-income ratio of 45+ percent. However, for those who have a credit scores below 640, debt to income ratio should be not above 38%.
Flexible Repayment Terms
FHA mortgage offers flexible repayment terms and options – a 30 year fixed rate mortgage an adjustable rate term, making it easy for you to pay back the loan. In addition borrowers will have flexible streamline refinance options available to them later in the event interest rates should go lower.
Buyers can learn more about FHA loans by visiting www.FhaMortgageSource.com
Memphis, Nashville, Knoxville, Chattanooga, Clarksville, Murfreesboro, Jackson, Franklin, Johnson City, Bartlett, Hendersonville, Kingsport, Collierville, Cleveland, Smyrna, Germantown
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