2/24/2023
In the United States there are a number of assistance programs for people with limited resources and for young people who want to embark on the adventure of buying a home.
The FHA (Federal Housing Administration) is an institution under the Department of Housing and Urban Development (HUD) of the U.S. government and provides the so-called FHA loans, which we are going to see what they are, what requirements they ask for and some options available in the market.
What are FHA loans?
FHA loans are a resource available to Americans or legal residents who do not qualify for a conventional mortgage.
They are designed for first-time buyers and people with low income, so, in theory, the contracting process presents more flexible conditions and requires a more affordable investment.
- Interest: Fixed-rate or adjustable-rate
- Max term: Consultar
- Interest: 6.75%
- Max term: 30 años
- Interest: Consult
- Max term: Consultar
- Interest: From 5.62% fixed
- Max term: 30 años
- Interest: Consult
- Max term: Consultar
It is important to remember that this federal agency does not give you the money, but functions as an insurance in case you cannot finish paying.
Requirements to apply for an FHA loan
When we talk about mortgage loans or loans of any other nature in the United States, it all comes down to one word: qualification. This means that you must meet several requirements set by the government for the bank or lender granting the FHA loan.
Since these loans are not limited to first-time buyers or those with limited resources, here's what you'll need:
Have a verifiable source of income.
Undoubtedly one of the most important conditions to access this government program.
To meet this requirement, you need to show that you have had a steady job for 1 or 2 years (maybe less), even if it is not with the same employer. Verification includes showing pay stubs, pay slips or respective tax returns.
Ability to repay the FHA loan
Perhaps the most relevant factor to assume this commitment is your liquidity to pay back the money.
The main recommendations for this to happen is that the mortgage loan payment should not cover more than 35% of your after-tax income and the sum of the credit plus other fixed expenses should not exceed 48% of your salary.
This is known as the debt-to-income ratio or DTI, which represents your monthly obligations divided by your income each month.
Generally, lenders require this percentage to be 36 or less. However, some lenders may allow a higher ratio, up to 48%.
Possess a FICO score between 580 and 640.
This condition applies to those who want to take advantage of the 3.5% down payment and 96.5% financing for the established value of the home.
In case your score is below 580, the down payment goes up to 10%. This is what the FHA states, but most lenders may require a score of 640, since they are the ones giving you the money.
In addition to this condition, the Federal Housing Administration's requirements usually include other specific aspects about your credit behavior.
In order to receive the approval, they take into account the incidences of bankruptcy, foreclosure, payment history and other circumstances that would prevent you from being able to comply with the acquired commitment.
Have at least 3.5% for the down payment.
The amount you need to have saved is usually more than what is advertised. While the minimum down payment for an FHA loan is 3.5%, you may require at least 6% or 7% for closing costs.
This includes the PMI or Private Mortgage Insurance premium, which can be as much as 1.75% of the value of the home and which you can reduce to 1.25% by going through the FHA loan approval counseling program.
Types of FHA loans
While the most popular mortgage is the 30-year fixed-rate mortgage, there are several terms and conditions you can choose from. In the fixed annual percentage rate category you have 10, 15, 20 or 25 years to pay.
If you want an adjustable-rate mortgage ARM, the available formats are: 3/1, 5/1, 7/1 or 10/1 with a 30-year term. With these alternatives, the first number signifies the number of years with a fixed rate and the second number signifies how often the adjustment is made at the end of the unchanged period.
How to apply for an FHA loan?
We remind you that an important part of this process is to understand the costs and the obligation of the PMI, which can be upfront or in monthly payments.
When you do not make a down payment of more than 20%, the private mortgage insurance payment may last for the life of the loan or 5 to 11 years on average.
Once you have analyzed the above and are certain that you can qualify for an FHA loan, you should begin the pre-approval process.
This can be done through an independent mortgage broker or MLO, an online lender, a bank or a credit union. We invite you to compare 2 or more options and request the information so that you get the cheapest offer.
FHA mortgages are a very valuable and affordable alternative for first-time buyers or those who qualify to purchase an FHA-approved home.
English: Préstamos FHA para comprar casa y qué requisitos tienen