An FHA (Federal Housing Administration) loan is a type of government-backed mortgage loan that can allow you to buy a home with flexible financial requirements. You may qualify for this loan even with a lower credit score, a history of debt, or bankruptcy. If you’re thinking about buying a home and weighing your options for loans, here are a few things to know before applying for an FHA mortgage loan in 2022.
How FHA Loans Work
There are various types of loans to help first-time homeowners, but their expectations may be too high for some people. However, whether you’re a first-time or repeat home-buyer, you can use the FHA loan program to buy or refinance a home at an affordable rate. With FHA loans, buyers with lower credit scores and smaller payments can still qualify for mortgages. An FHA loan makes buying a home more accessible and approachable for people having trouble saving significant amounts of money for down payments and closing fees.
The loan program backs mortgages for single-family homes used as main residences. However, you can use it to purchase a multiunit property if you live in one of the units.
FHA Loan Requirements
Although obtaining an FHA loan is easier than with other loans, one must still meet some basic requirements to qualify for an FHA mortgage. These requirements include:
- You must be using the loan for a primary residence—not for an investment or vacation home.
- The home you’re purchasing must be safe, according to FHA property requirements. An appraiser will check out the home you selected.
- The 2021 mortgage limit for most areas was $420,680. However, your loan limit can be more significant if you live in a high-cost area such as California or Florida.
- Your FICO credit score must be 580 or higher if your down payment is below 10 percent. You could get approved with a credit score of 500 if you can make a 10 percent down payment.
- You need a minimum down payment of 3.5 percent.
- Your debt-to-income (DTI) ratio should be below 50 percent. However, it is possible to qualify with a ratio as high as 50.
Lenders Can Set Their Own Requirements
Before applying for an FHA mortgage loan, you should know that not all FHA mortgage loan lenders are the same. The FHA sets a minimum requirement for all loans, but each lender can enforce its own rules. For example, one lender may accept a higher DTI ratio than others, or one might require a higher credit score. Since there are so many different FHA lenders, you can always apply with another if one company turns you down. Therefore, before selecting a company, shop around until you find the best mortgage rate.
Before applying for an FHA mortgage loan, take your time and explore your choices before closing on your forever home.