If you're mulling over the possibility of buying a house, you might consider an FHA loan. These mortgages are backed by the Federal Housing Association (FHA) and are popular for their low credit and minimum down payment requirements.\\As the program is backed by the FHA, you'll need to go through an FHA-approved mortgage lender to get an FHA loan. Let's take a look at the FHA Loan requirements for 2024.
Minimum credit score
The minimum credit score depends on your down payment. If it is 3.5% of the loan amount, then the minimum credit score is 580. However, if you're able to offer a 10% down payment, then you might be able to qualify with a minimum credit score of 500.
Minimum down payment
The minimum down payment for an FHA loan is 3.5% if you have at least a 580 credit score. It's 10% if your credit score is between 500 and 579. You are allowed to put cash gifts from friends, family, and employers toward your down payment.
Debt-to-income ratio
When you apply for an FHA loan, lenders will look at how much total debt you carry compared with your income, which is known as the debt-to-income ratio. Usually, the DTI for an FHA mortgage is 43%. In some instances the mortgage lender might accept a DTI of up to 50%,but only if you have stellar credit or a significant chunk of cash sitting in your savings.
The bottom line is that you must be able to comfortably afford your mortgage payments.
Loan income requirements
FHA loans don't have minimum income requirements, so they are available to prospective homeowners at various income levels. Further, you can be self-employed or a part-time or full-time worker. Ideally, you'll want to have at least two years of solid, steady job history.\Other sources of eligible income, such as child support and alimony, can also count toward your requirements. The main thing is that you have enough income and cash flow to stay on top of your monthly mortgage payments.
When you apply for your FHA mortgage, typical documents the lender will ask to receive include:
- Paycheck stubs.
- W-2 or 1099 forms.
- Tax returns from the last two years.
- Recent bank statements.
Loan limits
While there aren't any income requirements, and a low minimum down payment is allowed, FHA loans do indeed have loan limit. These are subject to change each year.\\In 2023 the loan limit for a single-family home is $472,030 in the majority of counties. In high-cost areas that loan limit is bumped up to $1,089,300. The special exception areas of Alaska, Guam, Hawaii, and the Virgin Islands have even higher loan limits.
Documentation requirements
While the exact documentation depends on your specific situation, here is a list of the documents and information you'll usually need to gather for your mortgage officer or loan originator.
- Home address.
- Social Security number.
- Name and physical address of your employers from the past two years.
- Current gross monthly salary.
- Checking and savings accounts information.
- Information and status for your loans.
- Info on any other property you own.
- Value of your personal property.
- Paycheck stubs and W-2 forms from the past two years.
- Personal income tax returns.
If you’re self-employed, you’ll also need:
- 1099-MISC and 1099-NEC forms.
- Current income statement.
- Business balance sheet.
Inspection and property requirements
FHA mortgages don't require an inspection, but they do require an appraisal. An FHA-approved appraiser will visit the property and do a thorough check of the home. The goal is to make sure the home passes the FHA's minimum property standards, colloquially known as “the three S's.” These are:
Safety – To protect the health and safety of the occupants
Security – To protect the security of the property for the FHA-insured mortgage
Soundness – To repair physical issues or conditions that affect the structural integrity of the property
Mortgage insurance requirements
FHA loans do require mortgage insurance, which is usually for the entire duration of the loan. There are two payments involved for mortgage insurance. The first is a lump sum up front, and the second is an annual payment.
The up-front premium is 1.75% of the total loan amount, and your annual insurance hinges on your total loan-to-value ratio, which is your mortgage amount compared with the appraised value of the property.
Foreclosure waiting period
If you've lost your home because of a foreclosure, the FHA requires that you wait at least three years before applying for an FHA loan. The window of time may sometimes be less than three years, but that requires an extenuating circ*mstance, such as an unexpected, chronic illness or the death of a breadwinner.
Homeownership requirements
In 2023 FHA loans can only be used on single-family homes with a four-unit cap. Buying a condo is permitted, as long as it's an FHA-approved condo. Other requirements for the property include:
- You have to start living in the home within 60 days of closing on your property, which needs to serve as your primary residence.
- It cannot be an investment property.
- The home must be free of toxins or hazards, and it should have plenty of access for emergency vehicles.
Frequently asked questions (FAQs)
What disqualifies a house from an FHA loan?
During the appraisal process, a house financed by an FHA loan must meet the minimum property standard guidelines for safety, security, and soundness (see “Inspection and property requirements,” above).
How do you know if an FHA loan is right for you?
An FHA loan might be a good fit for you if your credit is less than stellar, you have a higher debt-to-income ratio, you anticipate using funds gifted from friends and family toward the down payment on the home, or you expect to make a small down payment. It's always a good idea to explore all your home financing options before arriving at a decision.
How do you apply for an FHA loan?
As the FHA doesn't issue home loans directly, you'll need to apply through an FHA-backed mortgage lender. Before doing so, make sure you meet the minimum requirements and compile your documents, so you have them ready for your mortgage lender.
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