An FHA home loan is one of the best options for new homeowners and first-time homebuyers. FHA mortgages have more flexible requirements for approval and offer some of the lowest mortgage rates available. With an FHA loan, you can get approved with a lower down payment and an imperfect credit history.
FHA loans are government-backed mortgages which means they are widely available. Still, be sure to partner with a mortgage broker who underwrites FHA mortgages and has experience. The right mortgage broker will talk through your big picture goals and make sure your mortgage helps you build financial security. After all, a new mortgage in 2022 is one of the biggest financial commitments many people will make this year.
How to Pick The Best Mortgage Lender for an FHA Mortgage
For the best FHA mortgage, seek out a mortgage broker who does custom mortgages. FHA loans are fairly straightforward, but every mortgage has subtle differences that can end up costing you thousands of dollars over the life of your home loan. Even when a lender promises a low introductory interest rate, it can cost you more through one-time fees at closing.
Working with a mortgage broker who writes FHA loans and custom mortgages on a regular basis can get you a better home loan every time. A qualified mortgage broker will look at your whole profile — the purchase price and appraisal, along with your credit score, income, debt-to-income ratio, assets, employment history, and your down payment.
Quick tip—not all mortgage brokers are licensed to write FHA loans. So it’s best to make sure your lender writes FHA mortgages before you start working together. Make sure to check client reviews, too. Your mortgage is one of the biggest financial commitments you’ll make.
How to Get Approved for an FHA Home Loan
FHA loans are easier to qualify for compared to most other home loans.
There are three main financial buckets that lenders evaluate for your mortgage: your income, credit score, and total assets. Combined, this provides your lender with your DTI ratio (debt-to-income ratio). Your DTI is one of the biggest factors mortgage lenders use to determine risk.
Here’s a snapshot to get approved:
3.5% Down Payment
The minimum down payment required for an FHA mortgage is 3.5% of the amount you want to borrow. If your credit score is 500-579, a minimum down payment of 10% is required.
Lower Credit Score
The minimum credit score to qualify for an FHA loan is typically 580, though some lenders will approve a borrower who has a credit score between 500-579. Worth noting, you must be free of 30-day late payments within the past year and no foreclosures within the past three years.
Debt-to-Income (DTI) Ratio up to 45%
Your debt-to-income ratio (DTI) measures your monthly income against any recurring debt obligations and is one of the biggest factors that affects your mortgage offer. Most mortgage lenders require a DTI of less than 45% to qualify for an FHA. In addition, your mortgage payment should be below 32% of your gross monthly income.
Low Closing Costs
Closing costs for an FHA mortgage are the one-time fees associated with writing the loan. Prepare to pay 2%-5% of the total loan amount at closing. This is in addition to your down payment.
A Few Restrictions With FHA Loans
(1) FHA loans include an additional fee referred to as a mortgage insurance premium (MIP).
A mortgage insurance premium is similar to PMI (private mortgage insurance) that would be added to a conventional mortgage for homebuyers who put less than 20% down.
For the mortgage insurance premium required with FHA loans, there are two fees: a 1.75% fee due at closing and an annual installment that is typically added to your mortgage payment each month.
Many homebuyers roll the up-front fee into their mortgage. Also, the MIP payment is typically added directly to your mortgage payment each month for convenience.
(2) To get approved for an FHA loan, the property must be your primary residence.
Your new home can be a single-family home or a multi-unit property (up to four units), as long as you live in one of the units full-time. For condominiums and townhomes, the requirements are slightly different so be sure to talk with your mortgage broker.
FHA loans offer homebuyers an opportunity to make homeownership a reality in 2022 with a down payment of 3.5% and less than perfect credit history. Be prepared for closing costs and a mortgage insurance premium that will be added to your mortgage payment.
Finally, work with a mortgage broker who is licensed to write FHA loans and specializes in custom home loans. This will give you the best of both worlds and a mortgage that will save you money.
Applying for an FHA loan in 2022 is a smart move for homebuyers looking for a low mortgage rate and a low down payment. In most cases, working with an experienced mortgage broker who works with you toward your goals will get you the best mortgage and the strongest loan terms.
We work with multiple lenders across California, Oregon, Washington and Colorado to secure competitive quotes and give our clients get the best mortgage they deserve. Our goal is to save you money and help you reach financial freedom. Give us a call to get started.