An FHA mortgage is a tool used to help individuals with a difficult financial past start over. It is surprisingly easy to qualify for an FHA mortgage all things considered. If you have filed for bankruptcy or foreclosure in the past you will need to prove that you have resolved these issues. Doing so will illustrate to potential lenders that you can easily manage the responsibility of a mortgage.
Find out about FHA loan limits
Applying for Loans with Poor Credit
An FHA mortgage is designed to help people with poor credit. Past credit issues will not necessarily cut the approval process short.
- As a general rule of thumb you will need to meet the requirements on the payment application before entering into any FHA loan program. Many loan agencies are willing to make exceptions if you can prove you are actively improving your financial situation.
- Before you accept your loan a credit counselor will go over all aspects of your loan. This is to provide clear understanding of how to utilize the loan to improve your credit rating.
- The key to being approved for an FHA mortgage is proving that you are rectifying any past problems from your financial past.
The FHA recommends those applying for a loan work with a consumer credit counseling program. This will allow you to address issues in your financial past, eliminating issues from your record that may be unfair and allowing you to determine the best way to present your application in a positive light. This program will also teach you how to evaluate items such as your income to debt ratio.
Basic Requirements for an FHA Mortgage
FHA loans have very lenient requirements, but there are still a few qualification guidelines that you must meet:
- You must prove that you have had two years of steady employment with consistent or increasing income. Staying employed with the same employer throughout this two year period is encouraged.
- Your credit score will be analyzed carefully before you are approved. You should not have any late payments on your bills within the last two years.
- If you have filed for bankruptcy, the event must be at least two years old. Any foreclosures on your record must be at least three years old. Your credit after these events must be good to be considered for a loan.
The FHA is willing to work with people rocky credit history. They also understand the risks implied with working with these kinds of borrowers. You must be able to prove that you present as little risk as possible.
As long as you are able to prove that you are recovering from your financial turmoil and are ready to start a new chapter in your life you will have high chances of securing a FHA mortgage.
Can You Afford New Financial Responsibilities?
Before you jump into an FHA mortgage it is important to understand just what you will be expected to pay. Therefore you must adequately plan for your financial responsibilities.
- In order to be considered for an FHA loan, your monthly mortgage payment may not be more than 30 percent of your gross income.
- You will be expected to make a 3 percent down payment, which is considerably less than what most private loans require. You may receive the money for your down payment as a gift if necessary.
- You may be expected to pay additional fees such as your broker, recording fees and taxes, courier or wire fees while completing your mortgage.
Because FHA mortgages are guaranteed by the government, there are several programs available to help you manage your financial responsibilities. These are typically aimed at helping people avoid foreclosure.
However, because the lender and the government will be taking a risk in managing these mortgages you will typically be asked to pay additional fees to ensure that those offering this financial tool will not lose out on their investment.
Prequalifying for a Loan
If your application is suitable you can often prequalify for an FHA loan before you start shopping for homes.
- You may fill out an application in advance to determine if your financial portfolio is suitable to take on a loan.
- Properties that are purchased with an FHA mortgage will need to pass an inspection to ensure they are structurally suitable.
As long as you meet the requirements for an FHA loan application, you should be able to prequalify for your mortgage. It is commonly recommended that you apply for your mortgage in advance so you can make a point of shopping for homes within your budget. It is much easier to qualify for an FHA mortgage compared to most other types of loans out there.
SmartAsset can help you get started on the mortgage application process by helping you understand how much mortgage you can afford.
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