What is an FHA loan, and am I eligible for one?
Congress set up the Federal Housing Administration in 1934. This agency laid the groundwork for more affordable loans, which made it possible for many Americans to buy a home with little money down and low interest rates. FHA loans are insured by the government in case the borrower doesn't pay back the loan. This lowers the risk for lenders and lets them offer lower interest rates. Also, the FHA has pretty loose rules about who can get an FHA loan. This means that a lot of people can get an FHA loan. The low interest rates are also due in part to the high demand.
An FHA loan could be right for you if you want to buy a home with little money down. Consider the following rules to see if you might be able to get this kind of loan:
Income Qualifications
Your income is based on your last two years of full income tax returns with schedules and W-2s, as well as your last two months of pay stubs. The amount of loan you can get is based on your monthly gross income (before taxes).
Your housing costs should not be more than 29% of your gross monthly income. This means that the amount you pay each month for your home's principal, interest, taxes, and insurance should not be more than 0.29 times your monthly income.
Your total debt shouldn't be more than 41% of your gross monthly income. This means that your mortgage payment, car payment, and any other debt lasting longer than 10 months should not be more than 0.41 times your monthly income.
If you have gone through bankruptcy, you must have been making payments for at least a year before you can get an FHA loan.
Put money down.
Most FHA loans require a down payment of 3 percent of the cost of the house. Unlike some other loans, you don't have to use your savings or reserves to pay for this one. The down payment can come from a family member or from a programme that helps with down payments. Even though the FHA has general rules, your lender may also have rules that are specific to your area. Also, lenders who know a lot about FHA loans might be able to get around some of the general rules. This is why it is important to look around for a good lender who knows a lot about FHA loans.
