Millions of people have used the FHA loan since the Federal Housing Authority introduced this program in 1934. Many homebuyers like the program, because the requirements for down payments are lower than those for traditional mortgages making this program is possible for people who might otherwise not be able to own a home. In addition, qualifying for an FHA loan is much easier than qualifying for other home loans.
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Maintain employment for at least two years. If possible, this job should be with the same employer.
Maintain the same level of income for at least two years. It is even more favorable if an income of employees has increased in the last two years.
Stay up to date on payments to creditors. If an applicant’s credit report shows multiple late payments, they may limit their eligibility for an FHA loan.
Applicants must not have a bankruptcy history for the two years preceding the FHA loan application. Bankruptcies of more than two years will not prevent a person from receiving a loan from the FHA, as long as the applicant’s credit has not been negative after the bankruptcy has been wiped out.
Applicants must not have lost any property due to foreclosure for three years before apply for fha loan. If there is a history of foreclosure, the credit history since that time should be positive.
Future homeowners must choose a home that will have payments that are equal to or less than thirty percent of gross household income.
Tips and Warnings
The FHA loan program is not really a loan program, it is a loan guarantee program. Borrowers must select an FHA-qualified lender to administer the loan.
Even though a high credit rating is not a requirement for an FHA loan, a candidate must know his credit score.
How to pre-qualify for an FHA loan
Mortgages do not come from the Federal Housing Authority (FHA) itself, but rather from approved FHA lenders. The lenders make loans to individuals and the FHA guarantees these loans, which reduces the risk for the lenders and helps the borrowers to obtain the loan. Pre-qualifying for an FHA loan involves getting your finances in order and making sure that you are in good credit standing. Once this happens, you will have a good chance at getting the loan you want if you have had bad credit in the past or are just getting a college degree and looking for a new home.
Seek full-time employment or maintain your current job. Stay at work for at least two years before changing employers. Agree to work overtime that is offered to you, if possible. Or, consider getting a second, part-time job with a separate employer, if overtime is not possible. The Federal Housing Authority and its mortgage lenders want to see a potential homeowner who has kept his job for at least two years and has a stable and / or increasing monthly income amount. In addition, the stability of the job shows discipline and responsibility, two personal characteristics that can “earn” you a few “points” with a lender.
Improve your credit quality. Make arrangements with collection agencies to pay off debts that this financial accountability poster, if one or two collection accounts are “minor” in nature and do not have to be paid before loan approval according to FHA.com. Pay off court-ordered judgments and federal delinquent debt, such as tax liens and student loans, as people who hold this type of serious debt do not qualify for FHA loans.
Make monthly payments on all current mortgages and credit accounts. Maintain a satisfactory payment history for at least two years before apply for FHA loan. A reputable credit report shows only one thirty-day late payment in the last two years, according to FHA.com.
Review your credit report. Look at the bankruptcies and seizures, if any, on the report. Wait for a period of at least two years for bankruptcies and three years for foreclosures – and to maintain good credit during those periods of time – before apply for FHA loan in order to pre-qualify. Look for discrepancies on your credit report, such as one of the credit accounts you never had or other erroneous items. Challenge these items immediately – in writing – at major credit bureaus so that they are not problems when you apply for FHA loan.
Calculate your debt-income ratio. Find ways to reduce the ratio if it is too high, such as paying and closing one or two credit card accounts. Pre-qualifying for an FHA loan requires that your new mortgage payment be a maximum of 29 percent of your income. In addition, total debt – including mortgages, revolving and installment loans like credit cards and auto loans – must be 41 percent or less of your total income to pre-qualify for an FHA loan.
To calculate your mortgage-to-income ratio, divide your estimated new mortgage payment by your total gross monthly income and multiply it by 100 to get the percentage. To find your total debt-to-income ratio, add estimated your mortgage payment and all recurring monthly debts; divide this total by your gross monthly income.