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To qualify for an FHA loan, you need a 3.5% down payment, 580 credit score, and 43% DTI ratio.
An FHA loan is easier to get than a conventional mortgage.
The FHA offers several types of home loans, including loans for home improvements.
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Table of Contents: Masthead StickyWhat is an FHA loan?
An FHA loan is designed to help people in less-than-perfect financial situations buy homes. This type of mortgage is especially useful for first-time homebuyers who may not have had time to save a ton for a down payment or pay down all their debts yet.
When you buy a home, you choose between two basic types of mortgages: conventional government-backed.
A conventional mortgage is not backed by a government agency, and it’s a little harder to get than a government-backed loan. A conventional mortgage usually requires a 10% down payment, 620 credit score, and 36% debt-to-income ratio.
A government-backed mortgage is guaranteed by a federal agency; an FHA loan is guaranteed by the Federal Housing Administration. If you default on your mortgage payments, then the FHA offers your lender compensation.
Your loan will be backed by the FHA, but you don’t apply through the FHA. You’ll visit a regular mortgage lender that approves FHA loans. A lender’s website should specify whether it issues FHA loans.
An FHA loan only requires a 3.5% down payment, 43% debt-to-income ratio, and 580 credit score. Actually, you can apply for an FHA loan with a credit score as low as 500. But if your credit score is between 500 and 579, then you’ll need at least 10% for a down payment.
Who qualifies for an FHA loan
To receive an FHA loan, you must meet all of the following criteria:
Credit score and down payment. If your credit score is at least 580, then you’ll need 3.5% for a down payment. You’ll need 10% if your score is between 500 and 579.
Debt-to-income ratio. Your DTI ratio is the monthly amount you pay toward debts divided by your gross monthly income. For an FHA loan, your DTI ratio should be 43% or lower.
Property type. You can use an FHA loan to buy a single-family home, or a multi-family home for up to four families. You can also buy a condo or manufactured home.
Borrowing limit. The FHA restricts how much you can borrow. The limit depends on where you live and what type of property you buy. For example, the limit for a two-family home in Los Angeles will be different than for a four-family home in Orlando. Enter your state and county information to see your borrowing limits on the US Department of Housing and Urban Development website.
Property standards. You can use an FHA loan to buy a home with normal wear and tear, but not one …read more
Source:: Business Insider