The Federal Housing Administration, or FHA, is the federal government's main agency for housing issues and housing purchases. Every year, the FHA helps hundreds of thousands of people purchase homes, backed by an FHA-insured mortgage loan. The FHA helps people to buy their first home, but they also provide assistance to second, third, fourth, etc.-time homeowners as well. Whether you are a military family, civilian family, first-time home buyer, or a retiree looking for a retirement condominium, the FHA can help, as long as you meet FHA mortgage guidelines and qualifications.
An FHA-backed loan is not an actual mortgage, or mortgage funding that comes directly from the government. Instead, FHA-backed mortgages give lenders a sense of security when they choose to lend you-the borrower-money to buy a home. If a borrower defaults, and the lender must foreclose on a property, then the FHA steps in and provides insurance-money--to the lender. This gives the lender confidence when lending money to you that their risk is insured. FHA backing gives you a better chance of getting the mortgage loan you want, and need, to buy the home you've always wanted.
In order to qualify for an FHA-backed mortgage loan, there are some qualifications you must meet. These include:
- Having a steady job or a stable source of income. Retirement income, disability payments, wage income, investment income, or small-business income all counts. You typically must have two years' worth of income at the level needed to pay your mortgage.
- Being able to prove income. Pay stubs, receipts, invoices, bank statements-all constitute proof of income. Be prepared to provide this proof if asked. The FHA wants to insure people they view as "low risk," so the more documentation you have to prove you're a worthy risk, the better.
- Having a solid credit score. The credit score doesn't have to be perfect, but it does have to be decent. If you have recent defaults, collections, bankruptcies, foreclosures, short sales, or other credit problems on your credit report that have happened in the past 2-3 years, your chances of getting an FHA-backed mortgage are lessened.
- A low debt-to-income ratio. Lenders calculate this ration by looking at your monthly income, your monthly debts, and calculating the ratio. The lower, the better.
- Having enough down payment. The FHA only requires a 3% down payment, so on a $200,000 house you must have $6,000, for instance. You MUST have the 3% down payment from your own funds (no gifts, no borrowing from outside sources).
If you meet these qualifications and are ready to buy a home, visit the FHA's website at http://www.fha.gov/buyer/index.cfm and get your application started!
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