So, you’re looking to buy a home, but you’re not sure how to finance it. You’ve heard of FHA loans but don’t really know what they are or if you qualify.
Look no further! In this article, we’ll cover the key takeaways of qualifying for an FHA loan.
First off, FHA stands for Federal Housing Administration. An FHA loan is a mortgage that’s insured by the federal government and is intended to help first-time homebuyers and those with less-than-perfect credit secure a mortgage.
The idea behind the program is to make it easier for people who wouldn’t normally qualify for a mortgage to be able to purchase a home. One of the benefits of an FHA loan is that it requires a lower down payment than traditional mortgages.
While most conventional loans require at least 20% down payment, an FHA loan allows you to put down as little as 3.5%. This can make homeownership more accessible and achievable for those who have been struggling to save up enough money for a larger down payment.
Key Takeaways:
- FHA loans are government-insured mortgages designed to assist first-time homebuyers and individuals with lower credit.
- They aim to make homeownership more accessible by allowing a lower down payment than traditional mortgages.
- FHA loans accept as little as 3.5% down payment
- The program is especially beneficial for those who have difficulty saving up a larger down payment.
- FHA stands for Federal Housing Administration, the entity that administers these loans.
Qualifying for an FHA Loan
Getting approved for a mortgage can be a daunting task, but with an FHA loan, the process can be much easier. Qualifying for an FHA loan is often less complicated than traditional loans because the Federal Housing Administration (FHA) is more lenient with their approval criteria. One of the biggest advantages of an FHA loan is that it allows borrowers with lower credit scores to qualify.
While other lenders may require a credit score of at least 620, FHA loans only require a minimum credit score of 580. This is great news for those who have struggled in the past to maintain good credit or who are just starting out building their credit history.
Additionally, borrowers who have filed for bankruptcy or had a foreclosure in the past can still qualify for an FHA loan after meeting certain requirements and waiting periods. Another benefit of qualifying for an FHA loan is that you don’t need to put down as much money upfront.
With conventional loans, you typically need to put down at least 20 percent of the purchase price as a down payment. However, with an FHA loan, borrowers can put down as little as 3.5 percent of the purchase price.
This means that if you’re purchasing a $200,000 home, you would only need to have $7,000 saved up for your down payment. One of our clients was able to take advantage of this benefit when purchasing his first home last year through Casey Van Winkle at First Class Mortgage and was able to keep more cash on hand after closing on his new home thanks to this lower upfront cost requirement.
How Much FHA Loan Can I Afford
When it comes to buying a home, one of the most important questions on your mind is probably “How much FHA loan can I afford?” This is a crucial question that you need to answer before you start searching for homes in Maple Grove, MN or any other location. The amount of FHA loan you can afford will depend on several factors such as your income, expenses, credit score, and debt-to-income ratio.
To determine how much FHA loan you can afford, you’ll need to start with your income. Look at your monthly income and calculate about 43% of it.
This is the maximum amount of debt that is recommended to have including mortgage payments. Next, look at all your monthly expenses including rent or current mortgage payments, car loans, credit cards etc. Subtract this total from 43% of your monthly income.
The remainder is what you can afford towards a new mortgage payment which includes principal and interest as well as property taxes and homeowner’s insurance. Brady Day from First Class Mortgage suggests that if this number seems low compared to what homes are selling for in Maple Grove or other areas then consider a larger down payment which will lower the amount borrowed.
Another factor that influences how much FHA loan you can afford is your credit score. The higher the score the less risky lenders perceive lending money to you so they may approve more funds than someone with a lower score but typically even those with lower scores are approved by FHA because they are backed by the government guaranteeing certain protections to lenders. Casey Van Winkle advises borrowers who are considering applying for an FHA loan in Minnesota – or any state – should check their credit scores first so they know where they stand before going through the pre-approval process with an FHA-approved lender since having accurate information upfront will ensure accurate estimates from potential lenders plus there may be things that could be addressed before applying such as errors on reports or late payments being caught up without too much trouble.
How to Qualify for FHA Loan in Minnesota
To qualify for an FHA loan in Minnesota, there are a few requirements that you’ll need to meet. First, you’ll need to have a qualifying credit score.
However, keep in mind that having a higher credit score will increase your chances of getting approved for the loan and may even help you secure a lower interest rate. If your credit score is below 580, you’ll need to make a down payment of at least 10% of the home’s purchase price.
Another requirement for qualifying for an FHA loan in Minnesota is that you must have steady employment with proof of income for the last two years. Your employment history should show that you’ve been employed consistently and preferably with the same employer.
Also, if you’re self-employed or receive commission-based income, your lender may require additional documentation such as tax returns or profit and loss statements to verify your income. Casey Van Winkle from First Class Mortgage in Maple Grove, MN recommends speaking with an experienced FHA loan officer like Brady Day who can guide you through the qualification process based on your unique situation.
What Determines the Maximum FHA Loan Limit
One of the most significant factors that determine the maximum FHA loan limit is the location. The Department of Housing and Urban Development (HUD) sets limits based on median home prices in each county.
In some high-cost areas like San Francisco or New York City, the limit can be as high as $822,375 for a single-family home. On the other hand, in rural areas the limit can be lower.
Another factor that determines maximum FHA loan limits is property type. HUD adjusts its lending limits according to different types of properties; single-family homes usually have higher limits than multi-family properties like duplexes or triplexes.
For instance, in Hennepin County, MN (where Maple Grove is located), the limit for a single-family home is around $406,000 while a four-unit property’s maximum loan amount is $778,450. This makes it crucial to know how much you can afford when purchasing a multi-unit property and ensure that your loan amount falls within these limits to avoid any issues during closing.
