If you are a potential homebuyer with less-than-perfect credit and little cash on hand for a down payment, FHA loans are a lifesaver, allowing you to obtain mortgage loans you probably couldn’t get any other way. In order to get an FHA loan, you have to go through an FHA-approved lender.
Only FHA-approved lenders have access to and are trained and legally qualified to walk you through the process of getting an FHA mortgage.
Protection for You
With FHA-approved lenders, you’re not getting just any lender. You’re getting a lender who has undergone additional FHA licensing and met strict requirements – in other words, you will be working with a lender who you can trust to guide you through one of the most important decisions of your life.
Here are just a few requirements that make FHA-approved lenders uniquely qualified to help you get your FHA loan:
- FHA-approved lender groups are required to be valid corporations with a minimum net worth – no shady, fly-by-night operations here
- FHA-approved lender groups must have a managing officer with three or more years of experience in the mortgage field in which the company operates
- With FHA-approved lender groups, loan license suspensions or debarments from anyone in the organization can be grounds for losing group FHA-approved status
- FHA-approved lenders must not have been indicted or convicted of any offense that reflects adversely upon their "integrity, competence, or fitness"
FHA-Approved Lenders Offer More Options
For many people, buying a home is the fulfillment of a dream. Some, however, become disappointed when they discover that qualifying for conventional home loans is out of reach. Perhaps they lack the cash savings for a large enough down payment. Or maybe their credit is a little rough around the edges. And still for others, it’s the strict debt-to-income ratio requirements that keep them out of the market. In any case, these people, which make up a huge segment of Americans, are out of options—that is, until they discover FHA loans.
When they start working with an FHA-approved lender, a new realm of possibilities suddenly opens up, such as...
Low Down Payment. With an FHA-insured loan, down payments are allowed to be as low as 3.5%, and this can make or break the deal in many cases. For instance, for a $500,000 home, a conventional loan would require a $25,000 down payment, but an FHA loan would only require only $17,500.
Lenient Credit Requirements. FHA loans were created specifically for people with less-than-perfect credit in mind. Because the loans are backed by the federal government, FHA lenders can be more lenient in their lending requirements. Conventional lenders look at borrowers with credit scores of 700 and above, but FHA lenders are willing to consider borrowers with score of 620 or even lower.
Debt-to-Income Ratio. That's the percentage of your monthly income that goes to debt repayment. Conventional loans won’t allow any debt-to-income ratios above 28%, but FHA lenders have been known to qualify borrowers with debt-to-income ratios up to 30%. In other words, if your monthly gross income was $5,000, the biggest monthly mortgage payment you would be allowed on a conventional loan would be $1,400. But with an FHA loan, your allowed monthly mortgage payment could be as high as $1,500.
Competitive Rates. Despite FHA loans having more generous eligibility guidelines, their interest rates remain competitive with their conventional loan cousins.
Lower Closing Costs. FHA maintains strict guidelines around the closing costs that lenders can charge to borrowers. And any costs that don't fall within their guidelines are required to be paid by the seller, the lender, or even the real estate agent. Whereas conventional mortgages cap the amount a seller can contribute to closing costs at $3,000, FHA loans allow you to receive $6,000 in closing cost help.
Refinancing. The FHA also lets those who have FHA loans refinance with FHA loans under their Streamline Refinance program. This lets you refinance into a new low-interest loan with a minimum of fuss and paperwork.
Where Do I Sign Up For An FHA Loan?
Right now, you’re probably wondering what does it take to qualify for an FHA loan? Here's are the key requirements:
- No more than two 30-day late entries on your credit report
- Monthly payments not to exceed 30% of your gross monthly income (aka, debt-to-income ratio no greater than 30%)
- A down payment equal to 3.5% of property sale price
- Consistent employment over the past two years
- Steady or increasing income over the past two years
When determining whether an FHA loan is right for you, the best resource to check with is an FHA-approved lender, who will be able to inform you of all your options. FHA lenders know the ins and outs of FHA loans and can help you determine if you qualify for an FHA loan and if it’s the best route for getting you into a home..
Find the FHA Lenders in your area that are a perfect fit your situation. Contact a Mortgage Advisor.