Regardless of the FHA loan type you’re looking for; there will always be a limit on the mortgage. These limits are contingent on the county. FHA loan limits as of 2020 range between $331,760 to $765,600.
How To Qualify For FHA Loan
To be eligible for an FHA loan, you will have to satisfy certain requirements. It’s essential to not these are the minimum requirements for FHA, and lenders may opt to have more stipulations included. To ensure that you receive the best FHA loan terms and mortgage rate, look around for various FHA-approved lenders and compare their respective offers.
The minimum credit score you should have to receive an FHA loan is 500. You still qualify for an FHA loan if your credit score ranges between 500 and 579, but you’ll be required to make a significant down payment. Note that these are FHA rules – lenders can decide to go for a higher minimum credit score.
Down Payment Funds
If you have a credit score of over 580, your loan down payment can to as low as 3.5%. A credit score between 500 and 579 means 10% of the buying price will be dropped.
The upside is that the money doesn’t need to come from your personal savings. Gift money can be used to pay for your down payment so long as the donor writes a letter describing what sort of relationship they have with you, their contact information, gift amount, and a statement saying no repayment is needed.
Debt-To-Income Ratio (DTI)
The FHA needs a DTI that’s less than 50, which means that your monthly debt payments can’t exceed 50% of your gross income. This encapsulates debts you aren’t actively pursuing.
In the case of student loans that may be in deferment, your FHA loan will include 1% of the total loan as the monthly repayment amount. For any other loans you aren’t actively repaying, 5% of the total loan amount will compute your DTI.
The property you’re trying to purchase with an FHA loan, be it a condo, a house, a manufactured house, or a multifamily house, has to adhere to FHA minimum property requirements.
The FHA needs an appraisal that’s different from a house inspection. They want to be sure the house is a good investment – worth more than the initial amount you’re paying – and make sure that it has met livability standards and basic safety.
For every loan issued, FHA mortgage insurance is included. When you receive an FHA mortgage, you’ll be required to make an initial mortgage insurance payment (which can be included in the total loan amount), from where you’ll make monthly payments.
How To Apply For FHA Loan
Making an FHA loan application will need personal and financial documents that include:
A legal Social Security number.
Proof of citizenship, eligibility to work in America, or legal permanent residency
Bank statements for the last 30 days. You’ll also be required to offer documentation for any cash deposits done at that time (often pay stubs).
Advantages Of FHA Loans
Down payments for as low as 3.5%.
Debt-to income ratios that go as high as 50 are permitted
Lower minimum credit scores compared to conventional loans.
You can use any of the interactive features on our website or call us anytime to speak to a diligent mortgage professional directly. We hope to work with you soon! Click here to go to the first article in this series.
An FHA loan is basically a mortgage that’s been insured by the Federal Housing Administration. It allows down payments for as low as 3.5% with a 580 FICO. If you are a buyer with lower credit scores or limited savings, you should consider applying for FHA loans.
Regardless if you’re sure that an FHA loan is perfectly suited for you or you want to know what the FHA is, here’s a breakdown of all you need to know. You don’t need to delve into the FHA handbook for answers; find all the answers to FHA FAQs right here.
What Is An FHA Loan?
This is a mortgage that has been insured by the Federal Housing Administration. Borrowers with a credit score of 580 or more are eligible to get a minimum of 3.5% down payment. FHA loans are sought-after by first-time buyers with credit issues or little savings.
The FHA insures mortgages given by lenders such as credit unions, banks, and nonbanks. Upon default of the said loan, that insurance is in place to protect lenders. This is why FHA lenders are more than eager to provide favorable terms to borrowers who may be eligible for a home loan.
What Is The FHA?
The FHA, or as popularly referred to, The Federal Housing Administration, has been part and parcel of the U.S. Department of Housing and Urban Development since 1965. However, the FHA was founded over 30 years before that, as part of the New Deal.
In addition to the Dust Bowl drought and stock market crash, the Great Depression was marked by the housing market collapse. By the start of 1933, an estimated half of U.S. homeowners had defaulted their mortgages.
The FHA was founded under the National Housing Act of 1934 to cut foreclosures and make homeownership affordable. It put in place the 20% down payment as a new practice, insuring mortgages for up to 80% of a house’s value – in the past, homeowners were limited to borrow up to 50-60%.
What Are The Differences Between A Conventional Loan & FHA Loan?
Compared to Conventional Loans, FHA loans permit lower credit scores and, in some circumstances, low monthly mortgage insurance payments.
FHA loans may have closing costs not required by conventional loans
FHA regulations are more open-minded when it comes to gifts of down payment cash from employers, family, or charitable organizations.
Various Types Of FHA Loans?
The FHA provides various loan options, from relatively standard purchase loans to products specially made to meet highly specific needs. Here’s a look at FHA loans used to purchase a house:
Common FHA Purchase Loans
Basic Home Mortgage Loan 203(b)
Fixed not adjustable rates.
Various types of houses are eligible.
203(k) Rehab Mortgage
Renovation and Finances purchase with a single loan.
Buy and refi choices are available.
Construction to Permanent (CP) Loan
Finances the construction of a house together with the land on which it will be built.
Title I Properly Improvement Loan
Used for repairing an existing house or buy a manufactured home.
Funds energy-efficient upgrades during a refinance or home purchase.
Available for existing or new homes.
You can use any of the interactive features on our website or call us anytime to speak to a diligent mortgage professional directly. We hope to work with you soon! Click here to go to the second article in this series.
As a first-time homebuyer, you must be navigating one of the toughest real estate markets in the economy. It’s very hard to find the right house to buy since most people are buying any available houses to flip for profit. On the other end, builders are now focused on high-end homes because of the escalating costs so they can boost their own profits.
The Benefits Of Loan Programs For First-Time Homebuyers
Are you thinking about buying your first home? Well, there are first-time homebuyer programs, loans, and grants available to you. These are financial assistance programs given to qualified buyers, especially if they meet the set income restrictions and have high credit scores. Here are some of the ways you can benefit from these programs.
You might be eligible for a grant to cover costs related to buying a home such as down payment or closing costs.
2. Assistance With Closing Fees
You can get a loan that puts a cap on the total amount you can be charged for closing fees.
3. Deferred Payments
With these loans, you will not be charged interest or be forced to repay the loan until you sell the home or pay off the mortgage.
4. Savings On Interest
Some loan lenders will pay the interest or subsidize it. You can also get help with qualifying for a loan with reduced interest rates.
5. Loan Forgiveness
If you stay in the home for a predetermined period, a portion of your loan will be forgiven.
6. Assistance With Down Payment
With this program, you will put down a small down payment and the lender covers the rest. Also, in some cases, you will not pay the down payment at all.
With interest rates on the rise, you might want to seriously consider purchasing a house sooner instead of later. The next thing that you might be thinking about is whether you can qualify to get a mortgage or not given where interest rates are currently.
Although lenders have somewhat relaxed their standards since the height of the financial crisis that started ten years ago, there are certain minimum standards that you will need to meet in order to qualify for certain mortgages.
Specific financial documents, a decent debt-to-income ratio, and good credit scores are a few things that you will need for applying and qualifying for a home loan.
The specific requirements will mainly depend on the kind of loan you apply for. Therefore, in this guide, we have broken the lending requirements down for several different kinds of loans.
Requirements of FHA Loans
One of the easiest types of home loans to obtain is a mortgage from the Federal Housing Administration. Because insurance is provided on the mortgage by the FHA, quite often FHA-approved lenders can offer terms and rates that are more favorable.
Also, lenders are more comfortable with borrowers who are potentially more riskier given that 90 of the mortgage is backed up by the FHA. FHA mortgages have lower downpayment requirements which make them good for first-time homebuyers who might not have enough money in saving to make the regular 20% downpayment is when buying a house.
For FHA-approved mortgages, the following are the current minimum requirements:
A minimum 3.5% downpayment and credit score of 500 at least. A 10% downpayment may come from your personal bank account, a local downpayment assistance program, or gift from one of your relatives.
The debt-to-income ratio on FHA mortgages is set by the Department of Housing and Urban Development (HUD). The front-end ratio currently is 31% with a 43% back-end. The front-end ratio only considers housing-related costs, like the monthly mortgage payment, insurance, and property taxes. The back-end ratio considers all monthly debt, which includes housing costs, credit card payments, car loans, and any other forms of recurring debt.
The house must be your primary residence for the first year at least. That includes whether you are purchasing a single-family house or a four- or two-unit property.
You are required to have proof of employment and steady income for the past two years, along with explanations if you have frequent employment changes.
On an FHA loan, you are required to have mortgage insurance no matter how much your downpayment is. On FHA loans you need to pay two different mortgage insurance premiums – an upfront mortgage insurance premium payment and your monthly mortgage insurance payments that are paid each month for the entire life of your loan. The upfront mortgage insurance premium that must be paid is 1.75% of the balance of your loan. It is due at closing and normally financed as part of your loan. Once you make your 3.5% minimum downpayment, then you will need to pay a yearly 0.85% fee of the total amount of your loan. That amount is divided by 12 and then is part of your monthly payments for the life of your FHA loan.
Requirements On Conventional Loans
A conventional 15-year or 30-year mortgage as requirements that are slightly stricter compared to an FHA loan. However, it does come with some longer-term benefits and flexibility.
There are some lenders that might let you make as low as a 3% downpayment in order to qualify to get a conventional mortgage, but you will be required to have mortgage insurance. Some low downpayment programs might have income limits, so make sure you check the address on the properties along with your loan officer to find out if there are any restrictions or not.
On a conventional mortgage, you are not required to carry private mortgage insurance (PMI) and pay for it every month if you can make at least a 20% downpayment on the property. However, if you pay a lower downpayment, then you will need to pay 0.15 to 1.95% of the balance on your loan in FMI fees every year.
Another benefit that conventional loans offer is that after you have the principle down to 78% of the original property value, the lender is required to stop charging mortgage insurance if you make your payments on time. On an FHA loan, when you make a minimum downpayment, the only thing that you can do to eliminate monthly mortgage insurance is refinancing your loan.
On a conventional mortgage, the minimum score that you need to have is 620. However, there are some lenders that might require a 640 minimum score. Remember that having a better (higher) credit score will allow you to receive a better interest rate along with a lower mortgage insurance monthly payment.
Proof of regular income is required by lenders and they will look more closely at your earnings and employment history from the last two years.
Conventional lenders, as of 2018, allow for up to 50% DTIs in certain cases. For any with a debt ratio more than 45, there is one caveat: For people with higher debt ratios, Numerous mortgage companies now require a 700 minimum credit score.
Requirements For VA Loans
The Veteran Affairs Department offers a mortgage for active-duty military personnel, veterans, reservists, and their families. Part of the loan is guaranteed by the VA, which allows lenders to offer military personnel more favorable terms.
Certificate Of Eligibility
In order to qualify to receive a VA mortgage, you also are going to need to get a VA loan certificate of eligibility. It verifies that the military service requirements are met by the applicant in order to be eligible to get a VA mortgage. Certain identification and documents. Veterans and military personnel may apply, by mail, or via a lender after the form is completed.
There is no downpayment that is required.
There are no PMI fees that come with VA loans. However, a funding fee is charged. It is charged at closing and normally is financed with the loan amount. The funding fee amount will depend on whether or not it is the first time that the veteran is using their eligibility. If an applicant has a disability that relates to her or his military service, then the funding fee might be waived.
There is no minimum credit score requirement on VA loans. However, a majority of lenders funding VA loans do have a minimum 620 credit score requirement. The VA loan program just requires the lender to review the whole loan profile in order to ensure that the veteran applying for the loan has the ability to repay it.
No minimum income threshold must be met, although applicants do need to provide steady income proof.
It is recommended that your debt-to-income ratio be no higher than 41% to qualify for VA loans. A higher debt ratio might be approved since a VA lender will also look a the residual income of the veteran, which is calculated based on the borrower’s after-tax income, less expense along with a monthly maintenance calculation that is based on the number of members in the veteran’s family and size of the home.
Requirements for USDA Guaranteed Loans
A mortgage program is offered by the U.S. Department of Agriculture to give low to moderate-income families the opportunity to own their own house in designated rural areas. Applicants may relocate, improve, rehabilitate, or build a dwelling that is located in an eligible rural area. 2010 U.S census data on population is used to determine the rural designated areas.
On USDA-guarantee loans, the program backs 90% of the amount of the loan, and that enables USDA-approved lenders to take borrowers into consideration that might not qualify to get a conventional home loan. A 640 minimum credit score is required on UDA mortgage loans to be automatically approved – as long as the other requirements are met as well. However, homebuyers that have lower credit scores still might be considered for a loan that is underwritten manually.
Special eligibility requirements for your state must be met in order to qualify for a USDA mortgage. The USDA online tool can be used to determine whether or not the property is in a designated rural area. You will have to enter the address, city, and state of the house into the tool. That will confirm whether or not the house you are interested in buying is in one of the USDA designated rural areas or not.
The USDA map can be used to choose your state and then determine whether you meet the income eligibility requirements. The income limits vary based on family size, county, and city.
The homebuyer must meet the following basic requirements as well in order to qualify to get a USDA mortgage:
Agree to personally occupy the house as their primary residence. The home cannot be rented out or used as a second house.
Must be either a qualified alien, noncitizen national or U.S. citizen.
Can incur a loan obligation legally. That just means the homebuyer hasn’t been declared to be incompetent and has the ability to enter into legally binding contracts and understand what the debt obligations are.
Has not been banned or suspended from participation in federal programs.
Indicate a willingness to meet their loan obligations on time.
Buys a property that satisfies all of the criteria of the USDA program, including being located in a rural designated area.
For UDA home loans, the standard DTI ratio is 29%/41% of the gross monthly income of the applicant. On a UDA loan, the maximum allowable DTI is 32%/44% of the person’s gross monthly income, when all of the applications of a loan have credit scores of 680 at least. Under some circumstances, higher ratios are allowed by the USDA on a case-by-case basis. In order to get a waiver for a higher ratio, the borrower must request it from a USDA-approved lender and have it documented by them.
Requirements For HomePossible & HomeReady Loans
The HomeReady mortgage program is offered by Fannie Mae, which is a government-sponsored agency.
The programs are designed to assist prospective homebuyers with low and moderate incomes and limited funds for a downpayment on a house.
A 3% downpayment is required from a gift or the borrower’s own funds.
A minimum 620 credit score is required.
For homeowners lacking a credit score due to not having a credit history, a HomeReady loan can be a good solution. They can offer financial statements as a substitute such as on-time rental payments for 12 months or other types of monthly payments such as utility bill payments that don’t appear on a credit report.
The HomePossible and HomeReady programs may be approved with up to a 50% debt-to-income ratio with strong credit along with other compensating factors like retirement funds or extra savings for reserves.
This program is managed by Freddie Mac.
The HomePossible mortgage is similar to the HomeReady one, but there is one key difference between them. The HomePossible programs allow a borrower to include a non-borrower’s income into the financial calculations – which is income from another individual or individuals who are living in the house to count towards the total monthly income, even when those people are not on the mortgage loan. That can frequently benefit a homeowner who is taking care of a family member who lives in their home who receives Social Security or disability.
A minimum 620 credit score is required.
There is a 3% minimum downpayment required, and additional flexibility in terms of what the source is for the downpayment. The HomePossible guidelines allow the total downpayment now to come from sweat equity, meaning that the borrower can contribute handyman skills rather than money towards their downpayment.
There is a 43% maximum DTI, but there are exceptions up to 50% depending on how strong the borrower’s credit and income are, and whether or not they have any extra money in their bank account (reserves) for making future mortgage payments.
Key Mortgage Documents
Before you apply for a mortgage, the process can flow a lot smoother if you organize all of the paperwork and financial documents that are typically required by lenders on the loan application.
They may include:
Pay stubs for the past 30 days
W-2’s for all jobs that go back two years
A signed purchase agreement with the home’s seller
Tax returns dating back two years
Bank statements for the past 60 days
If you are self-employed, 1099 forms
Homeowners insurance proof
Documented sources of income such as stock earnings and dividends
Proof of any bonus income
If applicable, disability or Social Security income award letters
Securities documents like life insurance policies, bonds, and stocks
Some lender might require written verification of your position and salary, printed on the company letterhead of your employer. The might send a form for verifying employment to the human resource department of your employer to complete.
Before shopping for a house, it is wise to find out the amount you potentially will qualify to borrow. This means you don’t have to waste your time looking at houses that are outside of your price range. When you have a mortgage pre-approval, that means that the lender has examined your current finances, income stability, and credit history, and is prepared tentatively to provide you with a loan on a house.
You will need to provide the following in order to obtain a pre-approval from your lender:
Your social security number and identification.
All of the banks on your bank statements from the two most recent months.
Employment verification, which consists of either W-2’s for two years (or if you are self-employed tax returns) or a month’s worth of pay stubs.
Your credit report will also be pulled by the lender.
Usually, a mortgage pre-approval is good for a maximum of 90 days. Once that time has passed, a creditor will normally want to review your fiance again to see if there have been any changes.
You don’t need to worry about having several inquiries on your credit report if you obtain pre-approval from several different lenders. All of them will count as just one hard inquiry when they are done within a short period of time (typically 15 to 45 days).
Purchasing a house is a major financial commitment and culminates a lifelong dream for many people. Mortgage Lending Texas can assist you with comparing mortgage offers and products. It might be a long road to homeownership, but it doesn’t need to be a rocky one. If you arm yourself with the necessary information ahead of time about various loan programs that are available and what the minimum requirements are for each of them, and the financial documents that you will need to have, then you will have taken the important first steps towards smoother mortgage processing.
Mortgage Lending Texas
Our team at the Mortgage Lending Texas is comprised of mortgage professionals all across the state of Texas. We are dedicated to providing all of our clients with the best service possible for all of your mortgage needs. When combined with the lowest interest rates and the multiple loan programs that are available in your local area – Houston, Austin, Dallas, the Woodlands, Tomball, San Antonio, and Spring, Texas. Our mortgage professionals have years of experience and will work personally with you to ensure that you receive a home loan that is specifically tailored to meet your expectations and situation. Whether you are consolidating debt, refinancing your existing loan, buying your first house or dream home, our highly experienced loan officers can assist you with finding the best loan programs at the lowest possible rate.
Our ultimate goal is to develop a lasting relationship with all of our clients so that we can continue providing them with outstanding service for many years into the future. Unlike many large nationwide mortgage companies, we will keep all of your information private and secure. Throughout the entire lending community, our name is a highly trustworthy one.
To speak with one of our experienced mortgage professionals directly, just call us anytime or use any of the interactive tools that we provide throughout our website. We look forward to meeting and working with you.
If you have any questions, please feel free to contact us today!
Texas Loan Companies: What You Need To Look Out For
We have all been there. You have an emergency or bills to pay but have no money at all. A personal loan is the first thing that comes in mind when in a tight spot and need cash fast. With dozens of loan companies at your disposal, you are spoilt for choice, or are you? You, however, shouldn’t borrow from the first company you come across.
There are several important factors that one should consider applying for a loan from any company.
Understanding Personal Loans
A personal loan can be defined as money borrowed from a lender to be paid back with interest at a later time. Lenders have to determine a person’s eligibility for a loan before processing or approving a loan application. Lenders will look into an applicant’s:
Credit history and score
After submitting the loan application papers, the lender starts processing the loan immediately, then calculates how much you should pay for the same. You will, however, get these details once the loan has been approved. Should you be unable to repay the loan in full, the lender might choose to use debt collectors or even use legal action against you.
Why Should You Get A Loan?
Most people are eligible for different types of loans. Nonetheless, you should go about applying for loans simply because you can borrow. Financial experts advise against this and only recommend going for one for genuine reasons. Personal loans should, therefore, be treated with the utmost care to avoid building a mountain of debt on yourself. You should also avoid inquiring about a loan too often, as this too can affect your credit score.
Outlined below are some of the good reasons why people get personal loans.
1. To Pay For Medical Expenses
You can never prepare adequately for a medical emergency. Even your medical insurance might not be enough to cover for all expenses. If your savings are running low and unable to settle the medical debt, you can apply for a personal loan. With the personal loan, you should be able to clear the expenses more conveniently. The loan repayment plans are more manageable as compared to having to pay a lump sum at once.
2. For Home Improvement
A home improvement project can help give your home a value boost. That said, some projects can be too costly for the homeowner, forcing him/her to seek financing instead. A personal loan will come in handy in funding some of the expensive projects such as roof replacement or extensions. Some of these improvements tend to pay the loan off in one way or another.
3. Debt Consolidation
There are times when you will have several loans to service. This means some of the loans might end up being forgotten, forcing you to make late payments. Going for a debt consolidation loan can however help you manage these loans at once. The loans are consolidated into one, meaning you only have to think of one loan from that moment on. This reduces the risk of late payments and additional charges that may come with late payments.
4. Significant Purchases
Big purchases may put a huge dent to your savings account. Some investments, such as when you need to replace appliances in the house, or need to buy a car require lots of money. You can take a personal loan to help top up the amount you already have. Many people take loans to pay for their cars and other major purchases in the house. As long as you are confident, you’ll be able to repay the loan on time, then taking a personal loan can be beneficial.
Factors To Consider When Looking For A Loan Company
As mentioned earlier, it wouldn’t be wise of you to apply for a loan from the first company you see. Shopping around can land you a better deal. Here are some of the factors you need to consider when looking for a lender.
1. Interest rates: Check to see how much the company charges in interest. Variable interest rates may seem enticing but are riskier in the end.
2. Reputation: Look for a company reputable enough to stick to the terms of the contract. In addition to this, the company shouldn’t share your information with other companies or advertisers.