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Do You Satisfy the Requirements for an FHA Mortgage Loan?

07/28/2010
Anyone shopping for a new home, especially first-time homebuyers, should take time to research FHA mortgage loans. These loans can save qualified buyers a lot of money and that's just one of the benefits of an FHA loan. Although qualifying requirements are less stringent than those associated with fixed rate mortgage, not everyone will qualify.

Here's what's required to qualify for a low down payment, lower credit score FHA mortgage loan:

o You must live in the home you purchase with the FHA loan. An FHA loan cannot be used for investment purposes.

o The amount you borrow must not exceed the maximum amount allowed. This amount varies depending on the property's location. As a general rule, amounts are higher in areas that have a higher cost of living and higher housing costs.

o You'll need a down payment equal to 3.5 percent if your credit score is 580 or higher. A score less than that requires 10 percent down. However, don't be surprised if your lender requires a score of 620 or more. The one exception is a program that requires just $100 down. To qualify for the HUD $100 Down Payment Incentive Program you must purchase a HUD foreclosed property.

o Proof of employment is also required. One to two years at the same employer is what lenders want to see. If you're a recent graduate your diploma might be accepted in lieu of employment history. If you're self-employed you'll need proof that you've held the same type of job for at least two years. You'll also need to provide income tax returns and profit and loss statements (if incorporated) for the previous two years.

o To qualify, your debt-to-income ratio must not exceed 41 percent. If you have a student or other qualifying loan, a ratio of 45 percent will likely be allowed.
Other points to consider

o FHA mortgage loans allow the seller to pay up to three percent of the closing costs; previously the amount was six percent.

o An FHA mortgage loan doesn't require a home inspection. But you should have one conducted anyway. Note though that the government does define standards a home must meet to receive FHA funding. Any issue that doesn't comply with these standards must be fixed by the seller before the closing date. Or the seller can place funds to cover the cost of repair or maintenance into an escrow account. Should the seller refuse to address the issue(s), you probably won't be able to finance the home purchase with an FHA loan.

If you already have an FHA home loan and need to renegotiate the terms of that mortgage, we suggest you look into home loan modification.

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