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FHA Loan Requirements & Guidelines 2020
When it comes to home buying, FHA loans are one of the most common loan programs used across the country, especially for first-time homebuyers.
This program was created by the government some years ago to help people get into homeownership for the first time.
However, the FHA loan programs have turned into one of the most widely used programs that many lenders carry not only for first-time homebuyers but also for any buyers in general.
In this post, we will understand the FHA loan requirements and FHA guidelines for 2020.
More about the FHA Loan Program
The 1920s was a great time in America. Everything seemed feasible through modern technology such as cars, movies, and radio.
However, during the crash of 1929, the defaults and foreclosures skyrocketed.
Refinance was not available, many borrowers were unemployed and were unable to make mortgage payments.
When banks collected the loan collateral in form of foreclosed homes the low property values resulted in a relative lack of assets.
Due to this, homeownership was very difficult.
The national housing act of 1934 created the Federal Housing Administration (FHA) Which was established primarily to increase home construction, reduce unemployment, and operate various loan insurance programs.
Its intention was to regulate the rate of interest and the terms of mortgages that were insured. This gave birth to FHA loan programs.
The government created federally insured loans that gave mortgage lenders peace of mind, reduce lender risk, and stimulate the housing market.
These lending practices increased the number of people who could afford a down payment on a house and a monthly debt service payment on their mortgage, thereby, also increasing the size of the market for single-family homes.
In 1965, the FHA became a part of the housing and urban development.
FHA Loan Requirements
FHA has great requirements and rules on how you can get the FHA loans making them accessible to a lot of people.
FHA Loan Requirements For Down Payment
This is one of the important FHA loan requirements. The FHA will allow you to do a minimum down payment of 3.5%.
That is one of the lowest down payments you can get on a conforming loan.
FHA Loan Requirements For Credit Score
The minimum credit score required to be able to get an FHA loan is 580. However, it may completely depend on the lender what credit score they want to accept.
If your credit score is below 580 up to 500, you may have to increase your down payment to 10% and also might have to have some extra reserve requirement.
FHA Loan Requirements For Debt-To-Income
his FHA loan requirement is more relaxed compared to conventional loans.
FHA loan qualification in terms of DTI can go maximum up to 56%, whereas, for conventional loans, it is capped at below 50%.
FHA Loan Requirements For Property
FHA loan requirement concerning the properties is a little bit more strict.
FHA is concerned about the property requirements when it comes to health and safety standards.
Conventional loans are a lot more lenient on what you can buy.
That means if you are planning on getting an FHA loan you cannot have properties with missing rails on the steps, chipping paint, broken windows, etc.
FHA Loan Requirements For Assets
FHA loan requirements for assets are also lenient compared to those of conventional.
FHA allows you to take all of the funds needed as a gift from a family member including down payment and closing costs.
FHA Loan Requirements For Mortgage Insurance
FHA loans are given out by lenders across the nation. However, the federal government is the one who backs these loans.
If you are getting an FHA loan you need to pay mortgage insurance every month for the life of the loan.
Unless you pay a 10% down payment or refinance into a conventional loan after a few years.
Conclusion
Overall FHA loan requirements are pretty lenient as far as what can go in a traditional loan.
It is hard to find any other loan that is going to be more relaxed in its requirements unless you are going for something like a portfolio loan which has very high-interest rates.
FHA is a fantastic option if you are looking into getting a loan in the easiest possible way.
The ideal way to figure out if FHA is the best loan for you is, to talk with your trusted mortgage advisor and see what options you have available and compare the cost of the conventional with the FHA if you qualify for both.
Thanks for helping me understand that an FHA loan works for anyone who can meet its credit score requirements. My brother wants to buy a second-hand car for his office commutes. I’ll probably recommend that he look for a financial group that can set one of these loans for him.