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Home Talk Blog

How to Qualify for an FHA Loan

by US Mortgages / September 13, 2018

FHA loans are among the most popular loan types in the US, with an estimated 7.95 million homes currently in the FHA portfolio. 

This popularity is largely thanks to the buyer-friendly process and terms. After all, qualifying for a home loan with Colorado mortgage lenders for an FHA loan is much easier than qualifying for a conventional loan.

First, what is an FHA Loan?

Simply put, an FHA loan is a home loan backed by the Federal Housing Administration (FHA). This means that if you were to default on your home loan, the FHA would make sure your lender gets their money back.

This backing helps lenders feel more confident in lending money at competitive rates to borrowers with newly established or may have challenged credit, for example. FHA also makes it easier for buyers who can’t afford to pay the standard 20% down payment up front to qualify.

The FHA is happy to offer this service to American home buyers because home ownership is beneficial to the economic health of the country as a whole. It encourages pride of ownership, strength of communities, and financial stability.

Colorado mortgage lenders like US Mortgages are proud to offer FHA loans to help more Americans become homeowners.

Why You Should Consider an FHA Loan

Are you a first-time buyer? Or a homeowner looking to upgrade to a larger home? If you’re struggling to save enough for a down payment or working with less-than-stellar credit, an FHA loan may be a great fit for you.

Here are some of the advantages of FHA loans:

  • Low down payment (as low as 3.5%!).    
  • Relaxed credit score requirements.
  • Unlike conventional loans, your down payment for a home with an FHA loan can be a gift from friends or family. 
  • You might even be able to qualify for a loan to repair and renovate the property through the FHA 203k program.

Requirements to Qualify for an FHA Loan

While it’s typically easier to qualify for an FHA loan than a conventional loan, not everyone can qualify. Here are the requirements you need to meet to qualify for an FHA loan.

1. Credit Score

You need to have at least a 580 credit score if you’re hoping for the low 3.5% down payment. But it’s important to note that you can still qualify for an FHA loan with a credit score as low as 500. You would just need a 10% down payment to compensate for the credit score.

2. Income and Employment

You must be able to provide proof of employment and documentation of steady income for at least two years (through pay stubs, tax forms, and bank statements).

Debt-to-Income Ratios 

To protect buyers from taking on bigger mortgage payments than they can afford, the FHA sets debt-to-income ratios. DTI as it’s commonly referred to by mortgage lenders is the ratio of your overall monthly debt payments divided by your gross monthly income.

Typically, your total housing cost (mortgage, property taxes, homeowner’s insurance, mortgage insurance, and any homeowner’s association dues) should be less than 31% of your gross (pre-tax) income. 

Your total housing cost plus all other monthly debt payments (auto loans, credit cards, student loans, etc) should be less than 43% of your gross income.

3. Mortgage Insurance

To protect the FHA and the lender, FHA loans require Private Mortgage Insurance (PMI). You’ll pay a Mortgage Insurance Premium (MIP) to a private insurer who will be able to help compensate the FHA or the lender in the event of a default.

4. Qualifying the Property

The property must also meet certain requirements to qualify for an FHA loan, including:

  • Loan limits. The FHA sets specific maximum loan limits every year for local real estate markets. For 2018, the loan limit for most of the Denver area is $529,000
  • An independent appraiser must verify that the property is worth the purchase price.
  • Primary residence. The home must be purchased to be your primary residence (as opposed to a vacation home or investment property).
5. Qualifying the Lender

You can only qualify for an FHA loan through an FHA-approved lender. US Mortgages is one of the premier FHA-approved Colorado mortgage lenders.

FHA Loan Programs 

As one of the premier Colorado mortgage lenders, US Mortgages offers multiple loan types to meet your unique needs. Consider some of US Mortgages specialized loan programs like:

  • Home.Made Simple® Down Payment Grant Program
  • Veterans Incentive Program® (VIP) for active and former military service members
  • Lifetime Origination Guarantee™

If you’re a first-time buyer, you may even qualify for down payment assistance.

Contact US Mortgages today to get pre-approved for a home loan, and take your first steps toward the home of your dreams!

Tags: Home Buying FHA Loans

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