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A Federal housing administration loan is a government-backed mortgage insured through the FHA. This is ideal for first-time home buyers, because it requires a lower minimum credit rating and lower payments than many conventional loans.

For you to be eligible for a Federal housing administration loan you need a FICO score as little as 500 with 10 % for a down payment. To obtain FHA’s maximum financing, you’ll need a credit rating of 580 or higher and 3.5% down.

FHA borrowers purchase mortgage insurance. The mortgage insurance protects the loan provider from the loss when the customer defaults on the loan. With less risk to the lender, they provide more optimal loan product. Many people would not be able to buy a home if they didn’t have the FHA option available to them.

To become qualified to have a Federal housing administration loan, borrowers must satisfy the following lending guidelines:

The minimum down payment for a FHA loan is 3.5% of the purchase cost. The down payment may come as a verified gift from a relative or government program.

FICO score of 500–579 requires a 10% down also, with a FICO score of 580 or higher the down payment will be significantly less at 3.5%.

A steady work history of 24 months under the same employer is required.

Pay stubs verify your income, federal tax statements, and bank statements.

Remember, FHA loans are used to purchase a primary residence.

The Federal housing administration appraises properties. An approved appraiser is assigned to ensure that the property meets HUD property guidelines.

Your front end debt ratio (monthly debt payments, excluding a home loan) shouldn’t exceed 31% of the gross monthly earnings. Lenders may allow a ratio as much as 40% in some instances.

Your back end debt ratio (mortgage, plus all monthly debt payments) shouldn’t exceed 43% of the gross monthly earnings. Lenders may allow a ratio as much as 50% in some instances.

If you have filed and performed a personal bankruptcy, you have to wait 24 months to use. If you lose a property due to foreclosure, you have to wait three years to be eligible. Within the interim, you need to have re-established a positive credit rating. Lenders could make exceptions on waiting periods for borrowers with extenuating conditions.

FHA loans are perfect for borrowers with little cash in the bank for a down payment, and individuals who’ve less-than-ideal credit and can’t be eligible for a standard loan.

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