Are you ready to buy a home, but unsure about what type of mortgage you should get? One type of loan you may be considering is an FHA loan. Here is what you should know about an FHA loan before you make a final decision.
Debt-To-Income Ratio Requirement
Your debt-to-income ratio is based on how much of your monthly income goes toward paying off debts each month. For example, if you make $3,000 a month and have a car payment of $500 as your only debt, your debt-to-income ratio is 16.6%. When getting an FHA loan, the lender will check to make sure that you have no more than 31% of your income going toward debts when applying for a mortgage, and that the mortgage itself doesn't take you beyond 43%.
Down Payment Requirement
Don't have much money for a down payment? An FHA loan may be a good idea because of the low down payment requirements. For most people, you only need to have 3.5% of the purchase price of the home as a down payment for you to qualify for an FHA loan. However, that down payment requirement can go up if you have a low credit score. If you qualify for the lower down payment, it can make getting a home much more attainable.
Credit History Requirement
The credit score requirement starts with having a score as low as 500. This is the number that credit bureaus report when looking at all of the things in your credit report. If you have a credit score above 580, you'll qualify for the lower down payment. That can make it worth going through your credit report and cleaning it up before applying for an FHA loan. You will want to make sure it is 100% accurate, and that there are no debts listed on your credit report that you've paid off.
Maximum Loan Limit
FHA loans only allow you to borrow up to a specific amount of money based on the cost of homes in your area. Every county and state is going to have its own limits for how much you can borrow. On the low end, an FHA loan for a single-family home is going to max out at $420,680. Keep in mind that this is the amount of the loan, not the home itself. You only need to consider the amount of money you need to borrow after the down payment.
Contact an agent to learn more about FHA loans.
Share8 November 2022
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