FHA Home Buying Just Became Easier

Gone are the ideas home ownership is too difficult to achieve with tough requirements in place from the home mortgage crisis.  FHA loans have recently loosened the necessary qualifications for loans. Let us show you how to benefit from these recent changes. Call us at 248-692-4755   

FHA Loans Requirements & Qualifications

Name                                Current FHA Requirement

Minimum Credit Score                580

Down payment                           3.5%

Housing Ratio                             30%

Debt to Income Ratio                  41%

Mortgage Insurance                    .85%

Interest Rates                             Lower than Conventional Loans

Mortgage Limits                          $271,050 Michigan

Home Inspection Guidelines       Strict

What is an FHA Loan?

The FHA is part of the Department of Housing and Urban Development and was created to help low and moderate income families obtain financing for home ownership. FHA doesn't actually lend money, They are an agency that guarantees repayment to lenders if a borrower defaults. Since the lenders know they won't lose money on the deal they can offer competitive interest rates on loans that are easier to qualify for than typical conventional loans.

FHA Credit Requirements

Credit Score:  FHA loans feature very lenient credit requirements; the following score ranges should give you an idea of what you can qualify for:

580 and below: likely cannot get an FHA mortgage

580 – 620: must meet certain requirements such as having a consistent payment history for last least 1 year or be willing to make a larger down payment.

620 and above: Usually will have their pick of FHA mortgage products and lenders.

Bankruptcy:  You can qualify for FHA loans one year after Chapter 13 bankruptcy, two years after Chapter 7 and three years after a foreclosure, provided you’ve had no negative credit events since.

Income:  FHA mortgage loans require a steady source of income and consistent employment for at least two years. You’ll be required to list all of your assets such as:

  • Personal property
  • Cash in the bank
  • Investment account totals

Down Payments

Most FHA borrowers can get a loan with as little as 3.5% down. FHA also allows the down payment to be a gift from a loved one, provided the funds are an actual gift, do not need to be repaid and are accompanied by an approved gift letter. 

Housing Ratio

The maximum housing ratio for an FHA loan is 31%.  A housing ratio is the percentage of your gross income that you spend on your mortgage payment and plays a major role in mortgage loan approval process.

For example, if your gross monthly income is $5,000, you can get an FHA mortgage with a payment up to $1,550.

Debt to income ratio

The FHA allows a total debt to income "DTI" ratio of 43% on their mortgages. DTI, is the percentage of your gross monthly income that you spend on total debt payments, and is also be considered by many mortgage lenders a major determining factor in your mortgage eligibility.

Mortgage Insurance Premiums

Mortgage insurance is  one of the few downsides to an FHA loan. It's a requirement that you purchase mortgage insurance as a closing fee as well as each month as part of your regular loan payment.

All FHA borrowers, regardless of the term of their loan or the size of the down payment they make, must pay a upfront mortgage insurance premium at closing. While the premium can be added to your loan amount, it's still an extra charge.

In addition to the upfront fee, FHA loans also carry an ongoing mortgage insurance payment .

Mortgage Limits

FHA loan limits for single-family homes range from $417,000 in most parts of the country to as high as $729,750 in high-cost regions such as New York and San Francisco.  On average, most FHA loans are for lower than the maximum limits.

Interest Rates

FHA mortgage interest rates tend to be slightly higher than other loan types, since most FHA loans are taken out by riskier borrowers.  This doesn’t mean you’ll always have to pay more interest to get an FHA mortgage, but it does mean if you have several mortgage options, the FHA loan’s interest rate will likely be the highest of the bunch.

Because mortgage rates vary by lender, shop around and compare different mortgage loan companies. Mortgage shopping is a bit time-consuming, but it can save you a ton of money on interest. Start with your personal bank and acquire a free rate quote, and then talk with at least two or three other lenders.