If you’re in the market for a mortgage loan with lenient credit, lower down payment and low-to-moderate income requirements, an FHA mortgage loan might be right for you.
There are certain requirements you have to meet to qualify for an FHA loan, including:
There are a few more specific conditions to qualify, including a down payment amount, mortgage insurance, credit score, loan limits and income requirements. We’ll explore these factors in more depth below.
Your down payment is a percentage of the purchase price of a home and is the upfront amount you put down for that home. The minimum down payment you’re able to make on an FHA loan is directly linked to your credit score. Your credit score is a number that ranges from 300 – 850 and is used to indicate your creditworthiness.
An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher. If you can make a 10% down payment, your credit score can be in the 500 – 579 range. Ogden Mortgage Loans requires a minimum credit score of 580 for FHA loans. A mortgage calculator can help you estimate your monthly payments, and you can see how your down payment amount affects them.
Note that cash down payments can be made with gift assistance for an FHA loan, but they must be well-documented to ensure that the gift assistance is in fact a gift and not a loan in disguise.
There are a lot of factors that determine your credit score, including:
If you have a higher score, you might be able to qualify with a higher debt-to-income ratio. DTI refers to the percentage of your monthly gross income that goes toward paying debts. Your DTI is your total monthly debt payments divided by your monthly gross income (your monthly income before taxes). This figure is expressed as a percentage.
To determine your own DTI ratio, divide your debts (student loans, car loans, etc.) by your monthly gross income. For example, if your debts, which include your student loans and car loan, reach $2,000 per month and your income is $8,000 per month, your DTI is 25%.
The lower your DTI, the better off you’ll be. If you do happen to have a higher DTI, you could still qualify for an FHA loan if you have a higher credit score.
The FHA states that your monthly mortgage payment should be no more than 31% of your monthly gross income and that your DTI should not exceed 43% of monthly gross income in certain circumstances if your loan is being manually underwritten. As noted above, if you have a higher credit score, you may be able to qualify with a higher DTI.
If you are looking for a FHA mortgage lender that offers FHA Mortgage loans, Ogden Mortgage Loans is an FHA mortgage broker that is committed to being a leader in FHA mortgage loans.