When you have a great desire to buy your starter home, an FHA Home Loan can help. The great thing about FHA Loans is that these do not require a high credit score and a solid credit history. However, you should abide by the rules and provide the requirements. There are necessary preparations you need to make for you to get approved.
Here’s what you need to remember when you apply for FHA Loan Texas.
You need to have a steady and verifiable income.
Lenders will need to know that you’re capable of paying off the loan by verifying your employment history. Make sure that before you apply, you’ve been working for the same employer or the same field for at least 24 months and that you don’t switch careers or employers.
Different lenders have different FICO score requirement.
While it is true that you’ll need a credit score of 580 to qualify for an FHA loan, your lender will be the one to set their minimum credit criteria. You can find lenders who are generous enough to extend loans to homebuyers who have at least 580 or lower credit score.
Good Read: How to Improve Your Credit Score
Borrowers need to have at least two lines of credit.
Some individuals wish to apply for a mortgage but are often denied due to their thin or bad credit history. You can get approved even if you only have two lines of credit and you’ve proven you’re a good payer.
The minimum down payment is 3.5%.
FHA requires at least 3.5% down payment to qualify. However, it would be best to save at least 6% of the purchase price so you can afford the closing costs.
The maximum DTI Ratio is 50%.
Your Debt-To-Income Ratio lets lenders know how much of your income goes into your monthly debt payments. It would be best to keep yours at 43% max to qualify. However, some lenders do accept a DTI ratio of up to 50%.
You need to pay for Private Mortgage Insurance.
Since your down payment is below 20% of your home’s purchase price, one of the drawbacks of an FHA Loan is the need to pay for PMI monthly and upfront. It will protect the lender in case you’re no longer able to pay for the mortgage.
There is a need for an FHA Home Appraisal.
There is a detailed instruction whenever an FHA Home Appraisal takes place. They will only allow an FHA-approved appraiser to check what the current market value of the property is, and that the house meets the standards set by the Department of Housing and Urban Development (HUD).
It needs to be your primary residence.
You cannot use an FHA loan to finance a non-residential property. So, make sure you’re buying the house and that you, the borrower will reside and occupy the property.
For first-time homebuyers who have a low credit rating and a high DTI ratio, an FHA loan is perfect for you. This is also perfect for those who can’t afford a high down payment or if you’re only receiving it as a gift. Know that the closing costs can amount up to 5% of your home’s purchase price, so make sure to take note of this and other expenses that come with buying your first home.