• Lower loan limitations: Conventional loans allow borrowers to borrow up to the conforming loan limits (Opens Overlay). FHA loan restrictions(Opens Overlay) are lower than conventional loan limits, so you’ll only be able to borrow a set amount based on the county you’re financing in(Opens Overlay).
Before applying for an FHA loan
The first step is to assess your financial situation. Don’t start looking for a house just yet. Begin with the fundamentals. Examine your income, your bills, and the prices of properties in the area of interest. If you know how much you want to spend on a property, use an online mortgage calculator to calculate your monthly mortgage payment.
After you’ve carefully examined your finances and determined what you can afford, it’s time to contact a real estate agent and begin the process of being pre-qualified. Because not all lenders offer the same rates or have the same conditions, it’s a good idea to shop around to get the best terms for you.
FHA loan eligibility requirements
We’ve discussed credit score criteria and down payments briefly, but there’s a lot more to qualify for an FHA loan. Basic requirements differ for each lender, but some factors they assess are as follows:
• Credit history: FHA loans have some of the most forgiving credit score criteria. Furthermore, there is usually a shorter waiting period following financial troubles such as bankruptcy or foreclosure. However, a higher credit score usually translates into better terms. If you have a low credit score, try working on raising it before applying for a loan.
• Debt-to-income ratio (DTI): Your DTI is computed by adding all of your monthly payments and dividing the total of your pre-tax monthly income. The income and debts of both applicants may be considered in joint applications. FHA generally deems a DTI of no more than 43% to be acceptable. Although lenders may agree with a larger DTI, the lower you can keep it, the more likely you are to qualify for better conditions.
• Work experience: Your ability to pay is an important factor in receiving a loan. Your lender will look at how long you’ve been at your current job as well as your work history.
It’s also worth noting that an FHA loan can only be used for your principal residence. If you intend to utilize your house as a rental or vacation home, you will require a different form of a loan.