Home & Mortgage
FHA offers the most popular home loan programs among first time home buyers. This is mainly because of the low down payment and easy qualifying criterias.
FHA, which stands for Federal Housing Adminstration, is a governments backed loan. Most people are not aware that FHA does not provide loans. Instead, the loan which your lender provides to you, will be backed up and insured by FHA.
In other words, if you default on your loan, your lender will be covered by FHA insurance funding. This represents the main reason why its easier to qualify for the FHA Loan Program.
Normally the only criterias that a lender will request in order to qualify for the program include:
* 1. Credit Score. A credit score above 575, which is poor but moderate credit. Also, they will expect you not to have any derogatory accounts on your credit report. All past collections should be paid off upon submission of loan application.
* 2. Good and stable employment history. You will need at the least two years at your current position and or two years of employment history in the same line of work.
* 3. Down payment. You need funding to pay for closing cost and down payment cost. The closing cost normally range from 2-3% of home value and the down payment averages around 3% or more of the home value. There are FHA programs that offer zero down loans.
The amount your lender will lend to you depends on your income and the amount of your current debt. FHA figures your loan amount based on your monthly income and total debt combined with future mortgage expenses. They request that all of your debt not exceed 45% of your monthly income. This amount includes PITI (principal, interest, tax, and insurance.
If your gross monthly income is 4500.00, your monthly mortgage and debts can not exceed 2025.00. If you current debt averages 1000.00, you will only qualify for a monthly mortgage not to exceed 1025.00 including PITI.
Most lenders are strict with this criterion and will ask to see two years of W2s and six months to a year of pay stubs; in order to verify your monthly income is stable and does not fluctuate per month.
To get the best benefits of the FHA loan program find a lender that is most compatible with your current financial and credit situation.
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