Six Things You Should Know About FHA Loan Requirements

The most significant purchase most people will make is buying a home. Getting prepared for the process can make things go easier. First-time home buyers should consider attending educational programs where you’ll learn all about the process; including various mortgages.

The most popular of these loans is the FHA loan. It’s available for first-time homebuyers and people who have purchased homes before. FHA loans are backed by the government and are favorable to borrowers who can’t come up with a large down payment.

You also don’t require a perfect credit score, although it’s recommended that you check your credit report before applying for a loan. Are you thinking about buying a home?

Do you want to learn more about FHA loans? You’ve come to the right place. Keep reading for six things you need to know about FHA requirements.

FHA Loan Requirements 

FHA loan requirements are by far some of the most lenient in the industry. However, they come with drawbacks that some in the mortgage industry see as harmful to borrowers.

The most significant benefits also mean you could end up with a higher mortgage payment. Regardless of what type of loan you choose, you should weigh all the pros and cons.

The main goal of FHA loans is to assist more people in participating in the homebuying process. It is up to the buyer to assure they are ready to take on a mortgage and can afford the payments.

If you’re considering buying a home in Texas, this helpful link can provide information on FHA loans. Otherwise, continue reading.

1. Minimal Down Payment

If you’re wondering what the requirements are for an FHA loan down payment, the loans only require a 3.5% down payment. This down payment requirement is the lowest across all mortgage financing.

Of course, a lower down payment equates to a larger mortgage amount to finance. Unfortunately, not everyone can afford to put 10 to 20% down on a home purchase. One way to combat this is to purchase a home for a lesser amount.

Remember, potential homebuyers are qualified for a loan amount based on various factors. You are not obligated to shop for a home at the maximum amount.

2. Credit Score Requirements

To get the best interest rates on most traditional loans, you’ll need a near-perfect credit score. Perfect credit is not a requirement for FHA loans. A potential borrower can purchase a home with a credit score of 580 or higher.

Unfortunately, lower credit scores mean the loan terms won’t be as favorable as you like. Unless you go through a homebuyer’s program that guarantees a low-interest rate, you can expect to pay more.

It’s is well-advised that borrowers with credit issues work on improving their score before entering the home buying process. It will save you money in the long run.

If you’ve come across the perfect home, you can always work on improving your credit after the fact. With a perfect payment history, you can refinance with a lower interest rate in a few years.

3. Debt-to-Income Ratio

The debt-to-income ratio is a calculation where the lender takes your debt and decides it by your gross earnings to determine a percentage. The percentage determines if you can afford the mortgage you’re seeking.

If the ratio is above 43%, which is the amount set by the government, you most likely won’t qualify for the loan. One way to get around this is by putting down a larger down payment on the home.

When a debt-to-income ratio is too high, you are looking for homes in a price range that may not align with your budget. Remember, there is more to homeownership than paying a mortgage. You’ll need money for the home’s upkeep, repairs, and improvement projects.

4. Property Standards

FHA home loan requirements include rules regarding the types of properties the buyer can purchase with the loan. These requirements are in place to protect the buyer from common housing problems. If the buyer ends up with a money pit, they are more likely to walk away from the house.

The likelihood of the buyer defaulting on the also loan increases. Since the FHA is not in the business of unloading foreclosed homes, they set guidelines to help prevent it.

The FHA will look at the 3-Ss-safety, security, and soundness.

The home must be safe to live in. This means no hazards should exist. Hazards include faulty wiring, a leaky roof, termite damage, or broken HVAC systems.

Under security, the goal is to ensure the home is safe for habitation. Does the home have doors and windows? Are there clear pathways to the home?

The home’s structure must be sound and free of signs that it is compromised by poor construction or upkeep.

5. Loan Limits

Loan limits for FHA loan requirements are addressed each year. In 2022 the new limits for low-cost areas are $420,680 for one unit and up to $809,150 for a four-unit structure.

In high-end areas the range is $970,800 to $1,867,275. There are higher loan limits for Alaska, Hawaii, Guam, and the Virgin Islands.

6. Mortgage Insurance

One of the most controversial FHA loan requirements is the purchase of Private Mortgage Insurance (PMI). Lenders impose mortgage insurance on high-risk loans. It protects the lender in case the borrower defaults.

Mortgage insurance is imposed when the borrower’s down payment is less than 20%. It also can add $100 – $350 to your monthly mortgage payment.

Get Ready to Walk Through the Door of Your New Home

Meeting the FHA loan requirements is easier than you think. It requires a level of commitment and a willingness to work with a loan processor. In the end, you’ll be happy to see your name on the deed to your new home.

We hope you enjoyed learning about FHA home loan requirements. If you want to read more great topics, continue to browse our site and check back often for new articles.