Federal Housing Administration (FHA) loans are quite popular among first-time home buyers. After the economic crisis which was followed by the current recession in 2008, it has been quite difficult for the first-time home buyers to meet the mortgage requirements. But, in comparison with conventional mortgages, FHA loans are still easier to obtain and even offer some benefits. Professional appraisers such as New Jersey appraisers play a vital role in determining the market value of a home, before you finalize to purchase it. It is very important for the home buyers to meet all requirements of the FHA to get a loan approval. Here are some requirements that if you fulfill, you can expect a loan approval as long as you don’t have a mortgage with the FHA.
- Credit: The FHA is considerate and considers personal issues. It is lenient as far as credit issues are concerned. It excuses some imperfections if there is an explanation. Valuable assistance of professional appraisers may advantageous for performing residential appraisal. If you had debts or been previously bankrupt, you can still obtain an FHA loan two years after the discharge date. Also, if you had late payments all in different time frames as well as had a good history of payment, FHA will overlook those imperfections. Debt collections won’t be an issue. However, if you had any federal liens such as defaults on student loans or tax liens, you won’t be eligible for an FHA loan. Your credit score should be 620 when putting down minimal 3 percent, whereas conventional loans require a score of 720 or even higher for prime rates.
- Down payment: The best benefit of an FHA loan in comparison with the conventional loans is the lower cash required at closing. Several first-time home buyers lack enough funds to put 20 percent down as well as pay closing costs. The FHA needs just 3 percent of the loan amount to be paid at closing. It even accepts some of these funds as a gift from a family member. It allows for 6 percent in seller’s concessions which means that the seller can pay up to 6 percent of the closing rate.
- Rates: The FHA loans have quite competitive rates. This will result in lower payments every month. If you have a lower interest rate, you will pay a lot less over the life of your loan. Additionally, the FHA loan offers lower rates if compared with a conventional 30 year fixed loan. Valuations for Financial Reporting under FASB ASC 805 may prove instrumental in determining the appropriate value of the property in question.
- Application ease: FHA is extremely lenient when it comes to lending a loan. If you meet all its credit requirements, have a steady employment, and are capable to pay the 3 percent down payment, you will get the approval for a loan. In addition to this, its application process is simpler and easier than a conventional loan.
- Debt to income: FHA permits a high debt-to-income ratio. If a home buyer has a student loan, car loan, and credit cards, the buyer can still be qualified for a FHA loan. If you are employed and are expecting a raise later in the year but intend to buy a home now, you can get the approval for the FHA loan. If you have a car loan and think that your loan will be paid off in the next six months, you can receive the FHA loan. As long as you are confident that you can afford the payment, FHA will approve a 50 percent debt-to-income ratio. This ratio is determined by summing up all your debt that includes your proposed new mortgage payment which is divided by your monthly income to receive a certain percentage.
These are five FHA loan requirements that a first-time home buyer needs to fulfill in order to receive the loan approval.