FHA Loans: All You Need to Know

The Federal Housing Authority backed mortgage, also known as FHA loans make home-ownership an achievable dream for many first-time homebuyers – thanks to flexible borrower requirements. Compared to conventional loans, FHA loans are easier to obtain due to many reasons, such as a low down payment of only 3.5 percent, and a low credit score. Despite it being an easy financing option, not everyone qualifies for FHA loans as there are few criticalities involved. In this article, we discuss these all the aspects of FHA loans. Let’s start.

FHA Loans: Mortgage for Primary Residence

Federal Housing Authority doesn’t directly provide FHA loans to people. Borrowers get this loan from  FHA-affiliated lenders, and FHA’s task is to insure the loan. There are numerous FHA loan lenders in Texas, Virginia and other states who provide these loans based upon a uniform set of  guidelines set-up by the FHA. The FHA, however, provides flexibility to lenders in setting standards for determining basic requirements and loan eligibility.

FHA loans are financed only for borrower’s principal residence that needs to be owner-occupied. This loan may not be utilized for rental properties or any other form of investment. Other properties eligible for FHA loan includes: townhouses, row houses, detached and semi-detached houses.

Maximum Loan Amount

The maximum loan amount a borrower can receive with FHA loan program depends on two factors:

1.      The statutory limit for the geographical area where the property is located.

2.      The loan-to-value ratio for the specific property.

Though, with all these factors in hand, in most areas loan limit is $271,050; however, in costly areas such as Alaska and Hawaii it goes up to $625,550.

Credit Score Requirement

A minimum credit score requirement for getting any conventional loan is 620, however, a credit score of 500 works for FHA loans. It means that people with poor credit score may easily qualify for FHA loan programs. Though, a borrower may be disqualified from availing this loan scheme in certain situations such as if he fails to make timely payment of bills or any other dues.

Employment and Income Requirements

Borrowers with basic eligibility criteria of stable employment and income are eligible for FHA loan program. Usually, lenders like to see two years of steady employment history and lenders also expect borrowers to continue the job for at least next three years after obtaining the loan.

Conclusion

Keeping these factors in mind you can see that the FHA loan program is much more flexible than any other conventional loan programs. Therefore, if you are facing financial crunches, but still have a dream to own a home, the FHA loan program is the right way to go.