The Federal Housing Administration (FHA), provides mortgage insurance on the various loans that are available via FHA’s pre-approved lenders. The organization basically insures these loans for both single and multi-family homes in all territories that comprise the United States. The FHA is the single largest insurer in terms of residential mortgages in the whole world. It has insured tens of millions of residential properties since its inception in 1934. Here is a Complete Guide About Licensed Moneylenders in Singapore
FHA Loans: Criteria and Qualifications
Just like all other mortgages, FHA-backed loans also have a number of terms and conditions that you will have to meet in order to qualify for an FHA approved mortgage. These requirements tend to change over time and are largely dependent on your credit scores. Let us take a look at a few of the more important requirements.
o FHA Required Credit Scores
The FHA program allows eligible borrowers considerable leeway. Fortunately, it is possible to acquire a loan even if you have a very low credit score which can be as low as FICO 500-580 for a loan with a down payment. That said, if your credit score is low, you can expect to pay a lot in down payment.
Another point that you should take into consideration is that an FHA approved credit score does not automatically lead to approval. The FHA insures the mortgage, but it does not disburse the actual funds itself. The lending agency does that, and it typically adds its own credit overlay to the lowest credit score borrowers. This means that you are good to go only if your FICO score is around 600 – 620.
These days, many lending agencies are being penalized by the FHA if the loans they disburse end up becoming bad debts. Since the FHA is the insuring party, they make sure that the rules are followed to the T. If the lending institution is not careful enough, it might run the risk of its FHA lending authority status being revoked.
o You Must Have a Verifiable Source of Income
You need to have a steady source of income that can be easily verified via pay-stubs and tax returns. The lender wants to make sure that their loan is safe so they will only give a loan if you can show that you have been working in the same field for at least a year (preferably two years).
o Your Earning Ability Should Be Able to Absorb Your Current Debt and Your Housing Mortgage
This is also a very important factor in making sure that your loan is approved. As a general rule, your mortgage payment should be able to clear the following criteria:
- The monthly [payment should be more than 35% of your total gross income
- The monthly mortgage payment amount, as well as all other debt payments, should not be more than 48% of your income, at most