Did you know you can purchase a house even if your finances have been through the ringer? Did you know you can purchase a house despite the fact that you have a bankruptcy or a foreclosure blighting your financial record? If you’re wondering how, the answer is through the Federal Housing Administration, which is part of the Department of Housing and Urban Development, better known as HUD. At least half of all home loans taken out today are acquired through this federal program. If you’re wondering why, the answer is because their lenders are more willing to work with a person, so the FHA mortgage requirements are much more lenient. For some families, those reduced standards are often the ticket out of renting and into ownership.
Adhering to the Guidelines
Oftentimes when you think of taking out a loan on a home, you break out in cold sweats because you know a few things. First, your finances are going to be scrutinized. If they’re perfect, great! If not, it could be a source of anxiety for you; everybody knows the better the finances, the better the loan. A second source of stress is if you are approved for a loan, what next? Now you have to come up with the money to pay your down payment, which will be in the thousands, and your closing costs, which are also in the thousands. That’s a double whammy. At this point if you’re looking to go through a traditional lender, you may be thinking it’s best to turn in the towel before you ever join the fight.
Fortunately, there is another option for those of us who are dealing with finances that are either beyond our control or are in the process of being repaired. FHA mortgage requirements were created with the idea that people who are dealing with imperfect finances should still have the option to purchase a home, rather than being renters for life. Those things mentioned above that cause cold sweats are taken care of through federal financing methods. So let’s start with the first of the FHA mortgage requirements – your finances.
Here are a few things that are required. You have to have a steady job – meaning you have to show proof that you have been employed by the same employer for at least two years- and you have to have an income that has remained the same or increased. This is how they know that you will be reliable when it comes time to make your payments. If you have a bankruptcy on your record, that has to be at least two years old – a foreclosure is three – and you have to show that you have spent the last two years rebuilding your credit, which brings us to another requirement: your credit. This little number is interesting with the federal loan because there is no base number. It is preferred to at least be in the five hundreds, but in actuality your lender will determine where your credit score needs to be, so the number will vary depending on where you get the loan. This makes it possible for you to shop around. A final requirement is that your debt-to-income ratio before the mortgage can only be around thirty percent, and after the mortgage can be no more than fifty percent.
Putting it Down with FHA Mortgage Requirements
The down payment and closings costs are two additional sources of stress to the home buyer. It’s difficult to purchase a two hundred thousand dollar house if you’re looking at an additional ten, fifteen, or even twenty thousand dollars that have to be paid out up front. That’s enough to send anyone running for cover. Fortunately, the guidelines of the FHA mortgage do not specify that you need to pay that much. In fact, the down can be as low as three and a half percent of the loan amount. And, to put a little icing on the cake, this payment can come from a source other than you, which means a parent, grandparent, charity, or a distant cousin can help get that amount paid. As for the closing costs, talk to your lender about getting those wrapped up with the loan. There is a possibility you’ll be able to have that added to the loan and pay it off over time, rather than all up front as a lump sum.
All those fears that can surface at the thought of going after that home can potentially be put aside. If you’re serious about getting a home, now is the time to talk to your agent, your loan officer, and even your lender; they’ll let you know what kind of home is in the cards for you.