An FHA loan provides a great opportunity for people who want to purchase a home. Here are some of the most frequently asked questions about FHA loans.
What is a Federal Housing Administration (FHA) Loan?
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans.
How do I qualify for an FHA loan?
To qualify for this program, borrowers generally need to have good credit, a down payment of at least 3.5%, a manageable level of debt, and a steady income that is sufficient to repay the loan.
- A minimum 3.5% down payment with a credit score of 580 or above, or a minimum 10% down payment with a credit score of 500-579.
- Proof of employment and sufficient income.
- A maximum debt-to-income ratio of about 43%
Are FHA loans easy to obtain?
FHA loans are popular because they are one of the easiest types of home loans to qualify for when compared to conventional or “regular” home loans, but you’ll still need to have good credit.
What’s a good credit score for borrowers?
The minimum credit score for an FHA loan is 500, according to HUD. However, in order to take advantage of the 3.5% down payment option, borrowers need a credit score of 580 or higher.
How much can I qualify for?
The amount the lender is willing to give you will depend on various factors, but your debt-to-income ratio, or DTI, is one of the most important factors that will influence their decision.
Can I have a co-signer?
Yes, you can have a cosigner. Any cosigner must either be a U.S. citizen or have a principal residence in the U.S.
How long do FHA loans take to close?
The length of time between the application and final closing can vary based on several factors but can take anywhere from two weeks to two months.
Is a home inspection required?
HUD does not require a home inspection to be performed when the loan is used. But they do require an appraisal to determine the market value of the property.
Can the seller pay my closing costs?
Current HUD guidelines allow the seller to contribute money toward the home buyer’s closing costs, up to 6% of the sale price in most cases. But the seller is not required to do this.
Can an FHA loan be refinanced?
An FHA home loan can be refinanced much the same as any other type of mortgage, as long as you meet some basic requirements. For instance, you might need to have a certain level of equity in your home, or a certain credit score to qualify for refinancing.
Can my down payment be gifted?
Yes. One of the benefits of using this loan is that the down payment funds can be gifted by a family member, a friend, or other approved donor.