What Do You Know About Buying a Home with a FHA Loan?
The Federal Housing Administration insures mortgages for home buyers in the United States and has been a popular choice for decades. Potential home buyers often like to consider FHA loans for their mortgage needs because they are generally easier to qualify for. But how much do you know about the FHA home financing qualifications? FHA house loans are not for everyone, but they have helped millions of Americans become homeowners over the last eighty years. While FHA loans are not perfect, they are very good fits for many buyers. Take a few seconds and complete our quiz below to see how much knowledge you have on FHA and the lending requirements associated with these government insured mortgages. After you complete this quiz, you should have a much better idea about the FHA loan process, so you can hopefully know if it is a good fit for you.
Start the Quiz -------------------------------------------------------Why Are FHA Loans Easy to Qualify for?
The correct answer is C. FHA loans are guaranteed by the federal government. This means that if the home owner stops paying on the mortgage, the government will pay back the lender most of the outstanding balance. This is a key point because if the government will pay back the lender, it is less risky for lenders to give loans to people with lower credit scores and negative credit events in their recent past.
What Is the Minimum Credit Score to Get an FHA Loan?
The correct answer is B. You need a minimum 500 credit score to get an FHA loan. However, this is the bare minimum. Most people who are approved for FHA loans have a credit score above 600. There are fewer FHA approved lenders who will work with people with 500 credit scores. The good thing with FHA loans is that your credit score matters less than with conventional loans. If you can show the lender that you have regained financial stability in the last one or two years, having a low credit score may not prevent you from buying a home. Note that the minimum credit score for the lowest down payment is 580.
What is the minimum down payment for an FHA loan?
The correct answer is B. You must have at least a 3.5% down payment to get an FHA loan. You do need to have at least a 580 credit score to get this low of a down payment. Depending upon the strength of your application and other factors, you may need to put more money down. But many home buyers are able to be approved with a 3.5% down payment. Remember that you will need to have other funds available to pay for closing costs.
Can you get an FHA loan with NO credit history?
The answer is A. According to FHA rules, it is illegal for the FHA to automatically disqualify you from approval if you do not have a credit history. It is true that it is easier to be approved with a credit history, even if it has some negative marks on it. But FHA must consider all applicants. You can get approved for an FHA loan with no credit history if you have other ways of proving you are financially reliable. For example, you may use utility bill and rent payments to show financial stability. FHA approved lenders must consider alternative credit history such as this in your application.
How long after a major ‘financial hardship’ can you be approved for an FHA loan?
The answer usually is D. Having a foreclosure or a bankruptcy in your recent past does not necessarily prevent you from buying a home. Generally, lenders want to see at least two or possibly three years have passed before approving you. In a few cases, you may be approved in as little as one year after the negative event. In all cases, you must show the lender that you have reestablished your credit and are paying your bills on time.
What is the debt to income ratio requirement for FHA loans?
The correct answer is D. You need to show FHA in most cases that you have a debt to income ratio of 31% and 43% respectively. The front end ratio of 31% means your total mortgage payment each month is not more than 31% of your gross monthly income. The back end ratio of 43% means your total monthly debt payments do not exceed 43% of your gross monthly income. However, there are cases where you can be approved with a higher DTI. You may be approved up to 50% DTI if you show that you have more money in the bank or put more money down.
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