2024 FHA Loan Requirements

The beginning of the homebuying journey can be daunting. If you've looked into home buying, you may have heard of FHA loans, but what are these, and what are the drawbacks and benefits? FHA stands for a Federal Housing Administration loan. These loans are appealing if you carry debt, have a low credit score or have had previous financial issues like bankruptcy.

Let's take a closer look at FHA home loans, their requirements and whether an FHA loan might be right for you.

What is an FHA Loan?

An FHA-insured loan is a US Federal Housing Administration mortgage insurance-backed mortgage loan that is provided by an FHA-approved lender. FHA mortgage insurance protects lenders against losses.

FHA loans have a low minimum credit score and down payment requirement, which makes them especially popular with first-time homebuyers. These flexible underwriting standards are designed to help more borrowers become homeowners. The FHA's role is to provide insurance to lenders, protecting them against potential losses if borrowers default on their loans. This insurance enables lenders to offer more favorable terms and conditions to borrowers who may not qualify for conventional loans.

You can't buy just any home with an FHA loan, however. Based on your credit and finances, the lender determines how much mortgage you'd qualify for, within the FHA loan limits for your area.

What are the Benefits of an FHA Loan?

FHA loans are particularly appealing for renters looking to be homeowners who may have low credit scores or with limited down payment savings. Recent studies have found that 61% of Americans can’t afford to buy a house in the current market. FHA loans can grant home-owning abilities to people who otherwise wouldn’t have access. Additionally, people who have had bankruptcy or other financial issues in their financial history may have trouble finding a conventional loan that works for them. FHA loans take into account different metrics than traditional home loans to give borrowers the greatest opportunity to become homeowners

What are the Requirements for an FHA Loan

• FHA Credit Score: Credit score can be as low as 580 with a 3.5 percent down payment or a credit score of 500 with a 10 percent down payment.
• FHA Debt-to-Income Ratio: 43%.
• Only eligible if it is a new FHA loan for your primary residence, not an investment property.
• Must occupy the property within 60 days.
• FHA home must meet minimum property standards.
• FHA Mortgage Insurance Premiums (MIP): Upfront premium of 1.75% of loan principal paid at closing. Annual premiums between 0.15% and 0.75%, depending on the down payment and loan amount and term, paid monthly.
• FHA loans do not require a certain income amount, but you must prove a steady employment history.

How Do I Apply For an FHA Loan?

Choose a mortgage lender you’d like to work with. They will provide you with a list of all the necessary documents you must show (tax returns, pay stubs, etc.), and they will submit your application and begin drafting a loan estimate. After this, your lender will walk you through the FHA financing steps to be on your way to a closing on your new home.

Closing Paragraph:

An FHA loan might be the right loan option for you if you're a first-time home buyer or having trouble getting a loan due to your financial history. However, it's always important to weigh the pros and cons of any loan option before you fully commit to one. Make sure you're aware of all other costs associated with FHA loans and that you're financially prepared to pay them. For more information, reach out to us at Modern Lending or call 844-4-MODERN.