The Basics of FHA Home Loans
FHA loans are insured by the Federal Housing Authority (FHA). These loans are very popular among home buyers. Due to their less rigid borrowing requirements, FHA home loans are able to make buying a house easier for first-time home buyers. The requirements are:
- Minimum down payment
- Reasonable credit expectations
- Flexible income requirements
The FHA loan program was a response to the rash of foreclosures and defaults that took place in the 1930's. It provides adequate insurance to mortgage lenders. Also, this program helped ignite the housing market by providing loans that were accessible and affordable for people who did not have stellar credit, or cash for a large down payment.
Why Are They So Great?
Though FHA loans are not perfect, they are highly convenient in some situations. The most prominent appeal of the FHA loan is that it makes it easier to buy property.
An FHA loan is the easiest kind of mortgage to qualify for, as it requires a very low down payment and only a modest credit score. For an FHA loan, you are required to make a down payment of 3.5%, whereas other traditional down payments are 20%. Borrowers who have a credit score as low as 580 can typically qualify for an FHA loan.
Another benefit of an FHA loan is that it is assumable. This means that if you are planning to sell your house, then the buyer can assume the loan that you have.
If you are planning to apply for an FHA loan, then you must be wondering what it takes to be eligible for one. The FHA home loan requirements include details regarding income, credit rating and other factors, but before any of the information is analyzed, the applicant needs to meet the basic requirements.
Basic FHA Loan Requirements
- Applicants must have a valid social security number
- They should have lawful residency in the U.S.
- They should be of legal age to sign for the mortgage
These basic requirements apply to the applicants and any co-applicants that may be listed on the loan application.
FHA Income Requirements
Most people assume that to apply for an FHA loan, you need to fulfill some limit to be eligible, but that is not the case. Such limits are usually applied when the applicant seeks out down payment assistance or secondary financing along with the FHA mortgage. FHA loans do not employ a maximum income limit. Applicants are not turned down just because they make too much money.
FHA Minimum Income Requirement
There is no minimum income requirement for FHA loans.
Documentation Requirements
FHA loans are dependent upon the applicant’s credit score, Debt-to-Income (DTI) ratio, and other factors. To be eligible for an FHA loan, applicants must submit the following as part of their application:
- W-2 and tax return forms (past two years’ worth)
- Bank statements
- Debt information, credit cards, student loans and other bills
These are the points that make you eligible for an FHA home loan. Though there are several other steps to take into account when purchasing a home with an FHA loan, once eligibility has been established and the applicant has been approved, you are guaranteed the FHA mortgage.
First South Financial offers FHA loans in addition to a full suite of other mortgage products. To find out more, contact us at 901.380.7530 or at mortgages@firstsouth.com today!
