We know that for most people buying a home means getting a mortgage to finance your purchase. But with all of the options out there, how do you know which home loan is best for you?
One of your options is to get an FHA loan. FHA stands for the Federal Housing Administration which is a government agency created to increase home ownership across the United States all the way back in 1934. The agency itself doesn’t offer home loans but insures loan that are offered by private lenders (i.e. mortgage companies).
Who is an FHA loan best for?
It’s important to understand the different types of loan programs available to you and what benefits and drawbacks there are to each type.
For example, if you’re looking to find a fixer upper this may not be the right loan program for you. But an FHA loan may be a better fit for you if you have little cash saved up for a down payment or if you don’t have a high credit score.
FHA loan requirements:
At least 18 years old to apply
Must occupy the home as a primary residence
An appraisal must be done by an FHA-approved appraiser
Mortgage insurance (MIP) is required
Must have 2 years of employment history proving a reliable source of income
580+ FICO score requirement with at least 3.5% down payment
Student loan payments are factored into the debt-to-income ratio when applying
Your debt-to-income ratio must not be higher than 31% or total debt obligation cannot be higher than 43% of your current income
New FHA loan limits for 2019:
The FHA has a maximum loan limit it will insure. These loan limits are updated each year and are influenced by the conventional loan limits set by Fannie Mae and Freddie Mac. Other things like the type of home (i.e. duplex or single-family) can also affect the FHA loan limits.
For low-cost areas, the loan limit increased from $294,515 to $314,827. And for high-cost areas (i.e. San Francisco, Calif., and Seattle, Wash.) went up from $679,650 to $726,525. These loan limits are directly tied to both the median home prices and loan limits for conforming loans. You can check the FHA loan limits in your area here.
Will an FHA loan hurt your chances with home sellers?
FHA loans are attractive to home buyers because they require smaller down payments and usually lower credit scores. If you’ve decided an FHA loan is a good fit for you, just make sure you’re setting yourself up for success. One of the best ways you can do this is by going through the pre-approval process, you can start your application here.
Be sure to compare your loan options to find a mortgage that gives you more or start with one of our mortgage calculators to look at the numbers and find a mortgage that fits your budget.