Mortgage lending has transformed rapidly in the last few years. Families and couples who would have been able to buy or refinance a property a couple of years ago are no longer being approved for mortgages. This has led to a large number of people using government-insured FHA home loans, mainly because of their favorable terms.
The Federal Housing Administration (FHA)
The FHA was founded in the early 1930s, during the Great Depression. Since its inception, the FHA is thought to have insured over 37-million mortgages in the U.S. It is currently the largest government-owned insurer in the world. Because of the recent economic downturn, FHA loans have become more popular than ever, especially as they tend to be more accommodating than other mortgage options. However, an FHA mortgage does have certain approval criteria.
FHA Income Requirements
The FHA requires all potential borrowers have an earnings capacity evaluation and income verification. This is an important part of the FHA approval process as it shows the individual’s capacity to repay the FHA loan. A person’s monthly expenditure is also considered. They will also consider debt including credit cards, student loans and other payments.
FHA Credit Requirements
In order to be approved for a FHA loan the borrower’s credit score will need to be above 620. Information is taken from all three credit bureaus; the lowest and highest score is than eliminated leaving a middle or average score. The FHA itself sets a minimum required credit score above 580. However, financial institutions are allowed to raise this score to suit them. They may also add additional requirements.
FHA Property Requirements
A certified appraiser must carry out on an appraisal on a property before it is accepted for an FHA loan. Certain problems such as structural damage, poor painting and missing siding are likely to disqualify a house from a FHA loan. The property’s value is extremely important to an FHA loan, and it must appraise for at least the purchase price to qualify.
FHA Advantages
FHA loans do not work for everyone; the strict qualifications and the need to work with an FHA- approved financial institution is a disadvantage to many people. However, as well as boasting competitive rates and terms, FHA loans now demand fewer repairs. Before agreeing to an FHA loan, you should seek unbiased advice. The Department of Housing and Urban Development provides detailed information regarding benefits and qualifications.
