If you’re taking the huge leap from renting to buying a house, congratulations! While there are several essays comparing rent to home ownership, one still cannot deny the value of home equity. Home ownership is said to be the fulfilment of the American dream and having your own place gives you a strong sense of pride and joy.
If you now have a house in mind you’d like to buy, it’s also wise to start looking for a home loan that will help you with all your real estate undertakings. Houses don’t come cheap and unless you have thousands of dollars waiting to be spent, a loan is the easiest way to bag a house. Loans under the Federal Housing Administration are acknowledged to be the friendliest ones available today as these loans can accommodate borrowers whose credit scores aren’t considered promising.
If you’ve decided to apply for an FHA loan, your next agenda should be to check what the qualifications are and see if you make the cut.
The very first thing a borrower needs to make sure of is if he’s eligible for an FHA loan. Despite being considered as one of the most lenient loan programs there are in the loan market in the present, FHA loans still demand a certain score to be met. The base FICO rating of a borrower should be at least 500. Individuals who get a 500 to 579 credit score may be granted a loan and will be required to deposit 10%. Anyone who reaches a 580 credit score or higher are in for a better deal. Only a 3.5% down payment will be obliged from them.
If you still don’t know how you fair in this department, obtain your credit reports from the top credit reporting bureaus in America—TransUnion, Equifax, and Experian. Once these reports are in your hands, check every single one of them for accuracy and determine if there are inconsistencies and errors. Remember that your FICO rating will determine how much you will need for a down payment.
Lending institutions and bankers also put a premium in your debt-to-wage ratio. An unofficial rule in the house market industry is to make sure that your recurring bills and your potential mortgage fees do not exceed one-third of your entire monthly income. This is put in place to make sure that you’re still able to live decently even with added debt on your plate. Clearly, how much you earn is important. But it is not as important as how much will be left for you once all your bills are deducted from your take-home pay.
The presence of existing loans can also change the rhythm of your paying capacity. Although loans that have not been paid off completely yet don’t immediately eliminate your chances of an FHA home loan grant, they can affect a lender’s computation.
Heaps of people initially think of how much lenders can give them without asking themselves first how much money they’re able to give in the name of home equity. Houses cost a lot of money and there are several fees that have to be paid upfront even before checks are issued. Closing costs, land titles, attorney fees, and a down payment all involve shelling out huge sums of cash. Having money saved on the side never hurt anyone. Indeed, money does talk so make sure you come prepared.
Like anything that involves letting out a lot of money, documents have to be presented. According to FHA.com, the following are the required paperwork for an FHA loan:
- Address to your place of residence (past two years)
- Social Security numbers
- Names and location of your employers (past two years)
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Pertinent information for all open loans
- Complete information for other real estate you own
- Approximate value of all personal property
- Certificate of Eligibility and DD-214 (for veterans only)
- Current check stubs and your W-2 forms (past two years)
- Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals
To know more about what the FHA underwriting guidelines are and other FHA-related trivia, don’t hesitate to reach out!