An FHA insured loan is a mortgage backed by the US Federal Housing Administration and means that the federal government is insuring certain loans, to provide an extra level of comfort for lenders who may be nervous about lending to certain groups of borrowers.
First-time buyers and applicants with an imperfect credit record are typical candidates for an FHA mortgage loan, as are borrowers who are only able to offer a down payment of less than 20%.
FHA loan requirements mean that you are not always guaranteed of being approved even if you think you qualify, although there are definitely ways to improve your chances of getting the loan that can turn your dreams into reality.
The banks are still trying to recover from the financial crisis that affected us all a few years ago and as they are still facing losses from that period of lending, the government agency responsible for FHA-backed mortgages is expected to tighten its lending criteria, which means you need to know how to negotiate any roadblocks you face in your quest to get a mortgage like this.
Getting an FHA loan
As might expect, an FHA loan is an incredibly popular mortgage option and especially when you consider how difficult it now is for first-time buyers for example, to get on the housing ladder.
In theory, getting a Federal Housing Administration (FHA) loan approved is an easier task than being approved for a standard conforming loan. The main criteria that you will have to meet according to FHA guidelines relate to your credit score and your existing level of debt.
You should definitely check your credit score regularly to see what information is held on you and what your current credit score is.
The FHA requirements are that you should have a FICO score of at least 620, although it is possible that if your score is currently below 580, you may still be successful in your application if you can offer a larger deposit for example.
If you are planning to apply for an FHA mortgage, check your credit score and do everything you can to improve your current credit rating by paying all of your bills on time for a couple of months before you submit your application, to demonstrate that you can make repayments on time, which is important for a mortgage commitment.
The amount of deposit you have available as your down payment on the house purchase will be influenced by your credit score.
If you are able to demonstrate a reasonable credit score and your score comes in at 620 or above, current FHA requirements state that you will need a 3.5% down payment, but if you fall below that crucial 580 score, you will be expected to provide a 10% down payment in order for your application to be considered.
Current debt levels
If you hear the term used of debt-to-income-ratio, this refers to the current amount of debt that you have in total, which is then divided by your present level of income in order to arrive at a percentage figure.
The FHA guidelines suggest that they are looking for this ratio to be below 43%, so do a calculation if you can using your credit information and personal records, to see if this might be an issue with your application.
The general feedback on FHA insured loan approval rates is that if your debt levels are perceived to be too high, you may be considered a bigger lending risk and it could hamper your chances of getting approved for the loan you want.
Try to reduce your debt levels if you can before you make your application, as this will help not only help you to qualify for the loan, but it will also put you in a better financial position when you start making mortgage payments.
One of the big issues that lead to recent problems in the mortgage lending market was the fact that some people simply did not have the income to cover the loan they were applying for.
The new regulations have tightened up in this area and new government rules require that lenders verify your income and confirm your ability to repay the loan.
If you can’t increase your income before you apply, which is the case for many of us of course, unless we get a new job, look at reducing the amount you ask to borrow so that you can demonstrate an ability to repay the mortgage and don’t have an income shortfall.
The bottom line is that you stand a better chance of getting approved for an FHA mortgage loan if you check that you fit the criteria before making your application.
Gerry Nicodemus has over a decade of mortgage lending experience in which he has honed his skills in providing exceptional customer service. He is a dedicated professional who has a mastery of the mortgage lending industry and the process required to secure your loan. In the past, he has worked for various financial services firms with extensive experience in the Insurance and Financial Services industry. He provide clients with tailored product to fit their specific needs. His professional designations include: CFP, MDRT & CSA. When not working, he is an avid mountain biker and a golfer. It clears the mind and helps me focus on task at hand. The same focus he applies toward business when working with each individual client.