The FHA loan is the most popular government-backed loan in the United States. But, what are they? What does it take to qualify for one? Don’t worry, at Raleigh Cary Realty, we’re here to answer all your FHA loan questions.
For starters, FHA stands for Federal Housing Agency, and it is a division of the US Department of Housing and Urban Development. It was first created during the Great Depression. The FHA insures mortgages made by private lenders for single family properties. FHA mortgage insurance protects lenders against losses if a property owner defaults on their mortgage by paying the lender for unpaid principals.
This reduction in risk makes it easier for lenders to offer mortgages to first-time buyers and low and moderate-income buyers as well.
To qualify, buyers with a minimal FICO credit score of 580 must come up with at least a 3.5% down payment (Borrowers with a score of 500-579 may be able to qualify with a minimum of 10% down). In addition, borrowers must acquire a Mortgage Insurance Premium and have a debt-to-income ratio of less than 43%. They must have a steady income with proof of employment, and the home being purchased must be the borrower’s primary residence.
Before starting a FHA loan process, buyers should prepare to provide the following information:
- Home address (for the last two years)
- Social Security numbers
- Name and address of employers (for the last two years)
- Gross monthly salary
- Bank account information
- Details on all open loans and other properties
- Tax returns (for the last two years)
- Proof of income (Pay stubs, W2 statements) (for the last two years)
In addition, veterans will need to provide their DD-214 and Certificate of Eligibility.
Overall, the biggest advantage FHA loans have for buyers is that they increase the chances of first-time buyers and low-to-middle income families on getting a mortgage improved. For more details on FHA loans, contact us at Raleigh Cary Realty. We know how to walk buyers through the mortgage process.