FHA Loan Eligibility
An FHA loan is a mortgage insured by the Federal Housing Administration. It has several key components.
- Low down payment. FHA loans usually require just a three percent down payment. This down payment can also be gifted to the borrower, which makes home ownership more obtainable for the first-time home buyer.
- Low closing costs. Using an FHA-approved lender usually means lower closing costs than a conventional mortgage.
- Easier qualifying. Those with less-than-perfect credit are more easily approved for a loan through FHA programs because the federal government insures them.
- Lower overall costs. An FHA loan can have a better interest rate, which cuts down on the overall cost of the loan.
- Avoiding foreclosure. The Federal Housing Administration provides programs to help avoid foreclosure in case of financial difficulties.
- You must have a valid Social Security Number, be a legal resident of the United States and be of legal age to obtain a mortgage in your state.
- The lender verifies whether you can qualify for the mortgage by checking income, assets, debt load and credit history.
- You must be able to qualify for the loan.
- Typically, the only income limitation is to have enough income to afford the mortgage in addition to other debt payments.
- Although there is not a minimum credit score required to qualify, your score is still examined to help determine the interest rate.
Certain borrowers are better suited for an FHA loan than others.
- If you are a first-time home buyer, an FHA loan may be a good option. It can help you get a better rate than a conventional mortgage and you do not have to have as large of a down payment.
- Those who can only afford a small down payment or those who were given the down payment as a gift often find an FHA loan to be a good choice. It only requires 3.5 percent down and the down payment can be a gift from a family member or other source.
- If you have less-than-perfect credit, an FHA loan might be your best option. Because the Federal Housing Administration insures the loan, lenders can provide a loan to a borrower with poor credit without needing to charge exorbitant interest rates.
If you meet the FHA eligibility requirements and seem to be a good candidate for an FHA loan, you can contact an FHA-approved lender to see if you can qualify for a mortgage. However, it is always important to compare when shopping for a mortgage. Investigate conventional products, too, to see where you can get the best deal.