The Federal Housing Administration offers a great mortgage product for those of you that don’t have much of a down payment for a house. It’s also good for those that need to live in a more expensive area, but don’t have a 10% down payment given the home prices in the area. Conventional loan lenders have tightened up quite a bit, especially in states such as Florida, Nevada, California, New York, and Arizona that boast a huge foreclosure rate. Bank of America won’t consider anyone for a loan in Florida without a 10% down payment, because they aren’t willing to take a risk on young buyers. Not having a huge down payment doesn’t always mean that you can’t afford a mortgage. The FHA has slightly more lenient underwriting guidelines, because they believe in the American Dream, and they realize that there are still many potential homeowners looking to buy with a solid financial picture.
Here are some of the requirements for qualifying for an FHA mortgage:
- They require 3% down. Sometimes, you can get down payment assistance, but it’s very tough given the current market conditions. But, saving up 3% isn’t tough, so I’d just go ahead and ge the 3% stashed away before you apply for an FHA loan.
- You can’t have a bankruptcy or foreclosure in the last three years.
- FHA is looking for solid income earners. They typically lend amounts that won’t exceed 30% of your household income. For example, if you make $4,000 a month, they don’t want to lend you an amount that will exceed a $1,000 a month mortgage payment.
- Pay any open collection accounts. They won’t let you close on a house until you pay any unpaid collections. They don’t want to see more than 2 unpaid accounts over 30 days in the past two years.
- A credit score of at least 680 is the magic number. This is tough for most, and it’s not specifically required, especially if you have a foreclosure on your credit. Get your score to that number and you’ll get the most competitive rates.
- At least two years of employment history with the same employer. They are looking for stability, and this requirement is huge with the FHA.
If you fill all of these requirements, then you shouldn’t have a problem getting an FHA mortgage. Email me with any questions.