FHA loan requirements are simple; they’re different than conventional loan requirements. For a conventional loan, for example, you will need a good credit score. However a FHA loan credit score is only 580.
If you’re a first time home buyer and need a first time home buyer loan to purchase your dream home, then keep reading to find out how an FHA loan is right for you.
Click here to compare the rates if you’re thinking of applying for an FHA loan. It’s totally FREE.
In this article, we will cover several topics around the FHA loan requirements. As a first time home buyer, you will need to be aware of these requirements so that your home-buying process can go as smoothly as possible.
Here’s what we will cover: FHA loan limits, FHA loan rates, FHA loan credit score, FHA lenders, and so many others. In addition, we will address the difference between conventional loan requirements versus FHA loan requirements.
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FHA Loan Requirements – Guideline & Limits:
Buying a house through an FHA loan, while exciting, can be daunting, especially as a first time home buyer. Taking a few moments to familiarize yourself with the FHA loan requirements can save you from costly mistakes during the home buying process. Below is an overview of FHA loan process
FHA loan definition
What is an FHA loan? Simply stated, an FHA loan is a loan that is insured by the Federal Housing Administration. These type of loan are popular among first time home buyers because they allow them to put as low as 3.5% down payment and require a very low credit score.
So if you’re a first time home buyer with a bad credit, then an FHA loan makes more sense.
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FHA loan limits
FHA loan limits refers to the maximum amount of loan the FHA will give you. For 2019, for example, in low cost areas, FHA loan requirements have been set in place allowing the maximum amount for a single family home to be $314, 827. Whereas for a four-plex, the maximum amount is $605,525.
|FHA loan limits – low cost areas
For high cost areas, the FHA loan limits for a single family home is $726, 525 and for a duplex, the FHA limit is $930, 300. Those limits, of course vary depending on your states and they are update annually. So visit your state to determine what the FHA mortgage lending limits are.
|FHA loan limits – high cost areas
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FHA loan vs conventional
When it comes to get a home loan for presumably the biggest purchase you’ll ever make in your life, you certainly have to know the key differences between an FHA loan and a conventional loan. While it’s easier to get approved for an FHA loan, it’s important so that you can make the best decisions.
FHA loan requirements
The FHA loan requirements are fairly simple and straightforward. Here’s what they require: 1) You must have a credit score of at least 580.
2) A 3.5% down payment is required. (*note, if your FICO score is between 500 and 579, then you will have to put 10% down payment). 3) You will have to pay Private Mortgage Insurance (PMI);
4) Your debt to income ratio must be < 43%. Your debt to income ratio is the percentage of your income that you spend on debt, including mortgage, car loan, student debt, etc..
5) The home you intend to purchase must be your primary residence. You must also occupy the property within 60 days of closing.
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It can’t be an investment property. However, you can buy a duplex or triplex, live in one unit and rent the other units. As long as you reside in the property, you will satisfy that requirement. Also, the house must meet FHA loan limits (see above).
6) Finally, and of course, you must have a steady income and proof of employment. I will discuss later whether a FHA loan is better than a conventional loan. For more information about FHA loan requirements in general, visit the FHA website.
Conventional loan requirements
The requirements for a conventional loan, however, are much stricter. By the way a conventional loan or traditional loan is not insured by the Federal Housing Administration. But instead it is guaranteed by a private lender such as a bank, credit union, mortgage companies, etc…
Of course whether you will qualify for a conventional loan vary from lenders to lenders, but the following are required:
1) A credit score of at least 680 (of course the higher the score is, the more likely you will get qualified, and the lower your interest rate on the loan will be.
2) A down payment of at least 20% of the house purchase price. If you have less than 20%, you still can get the loan. But the problem is, you will have to take out private mortgage insurance, pay its premiums until you achieve at least 20% equity in the house.
3) Your debt to income ratio needs to be around 36% and no more than 43%.
Should you apply for an FHA loan or conventional loan?
As you can see above, the FHA loan requirements are less strict than the conventional loan requirements. However, which one you choose to apply to depends on your personal circumstances.
But if you are a first time home buyer, there are a lot of good reasons why an FHA loan would seem more appealing to you. For one, the down payment is only 3.5% (compare that with a 20% down payment a conventional loan requires). A down payment is the upfront money you need to to make when buying a home.
As a first time home buyer, saving for a 20% down payment on a house can be a big burden. Homes are expensive. For example, saving for $450,000 home can take you years to accomplish, especially if you have other debt like student debt, credit card debt, car loan, etc… So a 3.5% down payment makes it easier for you to buy your own home.
Second, the FHA loan credit score is only 580. Although, you should always take steps to raise your credit score, sometimes certain changes in your life may leave you with a low credit score. Perhaps, you had to file for bankruptcy which resulted in a low credit score.
Or maybe you never had a credit card, which means that you don’t have an established credit history. Or maybe you’re a victim of identity theft which lowered your credit score. So there are several reasons why you could have a low credit score.
However, that shouldn’t mean you can’t buy a house. That’s why the FHA loan requirements make it easier for folks who otherwise would not have been qualified for a conventional loan.
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