If you want to buy a home, but don’t have 20% of the mortgage to put down and your credit is less than perfect, you don’t have to give up on your dream of homeownership. With the right loan, you can still get a home! FHA loans are very popular among first-time homebuyers because of the low credit score and down payment requirements.
Just what, exactly, is an FHA loan? How can you figure out if you can qualify for one?
FHA stands for Federal Housing Administration. This Government agency dates back to 1934, when HUD, the U.S. Department of Housing and Urban Development, created it to increase homeownership in America. The credit score and down payment requirements are lower for this type of loan to allow more homeowners to qualify for home loans. Those who qualify for FHA loans are required to pay a monthly mortgage which totals about 0.85% of the loan amount annually. Should a borrower default on an FHA mortgage, it is foreclosed on and the HUD will pay the balance to the lender, then take possession of the property.
A minimum credit score of 500 is required to qualify for an FHA loan for a 10% down payment. However, with a score so low it is unlikely that you will be approved as a subprime borrower. With a score of 580, you are more likely to be approved and will only be required to have a 3.5% down payment. If your score is below 580, you would benefit greatly by improving it to at least that amount.
As of 2019, you must meet the following requirements to be approved for an FHA loan:
- 500-579 FICO score requirement with a 10% down payment
- 580+ FICO score requirement for borrowers with at least a 3.5% downpayment
- An appraisal must be done by an FHA approved appraiser
- Mortgage insurance (MIP) is required
- Steady employment and be able to prove income with recent tax returns, W2’s, and paycheck stubs
- Two years of employment at the same company
- Non-occupying co-borrowers are allowed
- At least 18 years of age
- Must occupy the home as the primary residence
For more detailed information on qualifying for FHA loans, look in the HUD Handbook HUD 4155.1.
With such low requirements, it’s no wonder FHA loans are so popular with new homebuyers. For those of you looking to buy your first home, finding out if you qualify for an FHA loan is highly recommended.
Stonebridge Mortgage Group Offers Guidance On All Mortgage Matters
Stonebridge Mortgage Group can help guide you through the home buying process. We help get you pre-approved for a mortgage and help with your real estate loans and other mortgage solutions, both residential and commercial. We serve the greater Portland area and are in Gresham, Oregon.