FHA loans are very popular, especially with first-time home buyers because the requirements are less strict than conventional loans. Here are the answers to common questions about FHA loans.
What is an FHA loan?
FHA loans are insured by the Federal Housing Administration and may have an easier qualification process due to less stringent down-payment and credit requirements than conventional mortgages. FHA loans have a major advantage for people who have little money to make a down payment.
What is the minimum down payment on an FHA loan?
FHA mortgages are one of the most lenient mortgage types available. Your down payment can be a minimum of 3.5% of the price, assuming you have at least a 580 credit score. Basically, you don’t need much cash to close.
Do FHA Loans Allow Low Credit Scores?
FHA loans are a popular alternative to conventional loans because they don’t require high scores. You can expect lenders to require scores anywhere from 620 to over 700 to approve a conventional loan. You can be approved for an FHA loan with a score of 580 or sometimes even less in some cases.
How much can I borrow?
The FHA is much more lenient than conventional loans when it comes to your debt-to-income (DTI) ratio. Your DTI is the percentage of your monthly income that you spend on debt payments. For example, if you pay $2,000 in monthly debt payments and your gross monthly income is $6000, then your debt-to-income ratio is 33 percent. Even with a high DTI, you can still qualify for an FHA loan.