FHA Loan Requirements – What Are They and How Can I Benefit

By December 2, 2012
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FHA loans are a popular and valuable lending option because they do not have the stringent requirements that are usually seen with other lending packages. There are some differences in these loans that are based on the housing market in the region of the country where you live. This is why it is very important to find out as much information about FHA loans as possible before you determine if they are the right choice for you.

126864063Unlike subprime mortgage loans, which usually have widely varying interest rates that spike upwards in the fifth or sixth year of the term, FHA loans have fixed interest rates that, on average, are lower. Unfortunately, many home buyers are not aware of the very achievable qualifications for an FHA loans and find themselves signing up for subprime structured loans with monthly payments that soon rocket so high that repayment is almost impossible.

The more flexible qualification standards for FHA loans make them an option that could be considered by almost all buyers. Most of the traditional loans that are available for homes require borrowers to have a credit score that is 740 or higher while FHA loans can be approved even if someone has a credit score that is as low as 640.

These loans also make it possible for someone to borrow money even if they have a credit history that includes serious financial problems such as a bankruptcy or a foreclosure. FHA lending agents do insist that all borrowers must show a perfect credit history during the 2-year period following a personal bankruptcy and for a 3-year period following any previous foreclosure.

FHA loan qualifications state that an applicant must be able to show that they have at least a 2-year history of steady employment. This work history is looked at most favorably when the applicant has been with the same employer and can show that they have a stable salary with periodic increases.

One of the most significant requirements for an FHA loan is the minimum down payment of 3.5%. This money is required to secure the loan for the borrower. The anticipated monthly mortgage payments are restricted to no more than thirty one percent of the applicant’s gross monthly income. There is also mortgage insurance that must be paid when you accept one of the FHA loan packages. Some people see this as a minor negative but it enables you to take advantage of an FHA Streamline Refinance if a refinance is required in the future. The great thing about an FHA Streamline Refinance is that it can be done quickly without having to go through the lengthy more demanding qualify process needed for a conventional loan.

Applicants who are interested in finding out more should be aware that the amount they are able to borrow may be less than would be offered in a conventional lending situation. This is another consideration that will vary according to the area of the country in which you live. The US Office of Housing and Urban Development, or HUD, limits the amount a borrower can qualify for; based on the median home price in the area they anticipate living. People who live in a region where housing prices are much higher than the national average may be approved for higher FHA loans.

In this recovering real estate market, the pros associated with an FHA Home Loan appear to outweigh any cons that might surface. Please visit the links listed below to learn more about FHA loan requirements and how you might be able to benefit.