The FHA loans are very famous amongst the first-time home buyers. These loans provide competitive rates and are more affordable in comparison to the conventional loans since they are granted by the government and not by any private lending institution. The Federal Housing Administration controls the FHA mortgage insurance program. You need to know that the FHA mortgage insurance enables the low and medium income people to take out mortgage loans since the government takes the risk of the lender. Thus, if a borrower defaults in paying off an FHA insured loan, then the government repays the loan on his behalf. You may also opt for refinance in case you cannot manage to pay off your present loan.
FHA mortgage regulations – What should you know about it?
The FHA mortgage law set maximum loan amounts. The maximum amount may differ extensively depending upon as to where the borrower resides. Obviously, the limitations are applicable to the mortgage amount only and not to the purchase price of the house. Thus, if the borrower makes a large amount of down payment, he can still be eligible for a FHA loan even if the value of the home goes beyond the FHA mortgage restriction for the area.
Income requirement – What is its importance for the eligibility of loan?
The FHA mortgage law set income requirements in order to become eligible for a loan. Although a minimum income is not required to qualify for this loan, a minimum debt-to-income ratio is required. The regulations do not enable the monthly mortgage payment of the borrower to be more than 29 percent of his gross monthly income. Likewise, a borrower cannot qualify for an FHA mortgage loan in case his total monthly payments on all long-term debt, including car, mortgage, student and personal loans, surpass 41 percent of his gross monthly income.
Credit and down payment – How are they related to each other?
You must be aware that the FHA mortgage regulations regarding credit and down payment requirements are closely related to each other. Usually, a borrower who has a credit score of at least 500 may be eligible for taking out an FHA loan. But, if the credit score of the borrower is less than 580, then he must provide at least 10 percent down payment in order to take out the loan. A borrower with a credit score of 580 or higher may make a down payment of 3.5 percent only. In spite of the credit score, you need to know that a borrower may not be able to become eligible for an FHA loan if he has filed for bankruptcy or has an unresolved tax lien in the past two years.