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FHA is the acronym for the Federal Housing Administration. FHA provides mortgage insurance on FHA Loans that is given by Lenders to home buyers. FHA itself does not lend money. They guarantee loans against default. FHA Loans are the easiest of the loans available to qualify for.
To qualify for an FHA purchase loan applicants must have at least a 580 middle FICO credit score to qualify for an FHA Loan with only a 3.5% down payment. With a minimum of a 620 middle credit score applicants can be approved with a maximum of an 45/56 debt to income ratio with an automated underwriting approval. Applicants with a score below 620 can be approved at a maximum 43/43 debt to income ratio. Applicants must show a 2 year steady employment history and be able to put a 3.5% down payment on a home purchase. FHA will also approve applicants with credit scores as low as 500 with a 10% down payment requirement.
FHA Loans do allow the down payment funds to be gifted by a relative or employer. FHA Loans also allow up to a 6% sellers help toward closing costs. If the home buyer qualifies for any available down payment assistance program that is also allowed with an FHA Loan.
In order to help first time home buyers in qualifying for an FHA loan, FHA use to exclude student loan payments deferred for 12 months from the debt to income ratio factor. This however has changed recently. FHA guidelines no longer allow for discounting student loan debt.
FHA guidelines allow for there to be a non-owner occupied co-borrower to be on the loan application. This is often a great help to prospective home buyers. FHA guidelines do not hold medical collections or charged off delinquent debts to be paid off to qualify. However, any other delinquent accounts totally $2500 or more must either be settled, payment plan set up, or a 5% of balance owed will be added as monthly debt for each collection and added to the total debt to income ratio.
With FHA Loans chapter 7 bankruptcies must be discharged a full 2 years for eligibility consideration. With Chapter 13 bankruptcies the prospective borrower must have completed 12 on time monthly payments and receive an okay from the court to purchase a home. Bankruptcies with extenuating financial circumstances.
FHA through their 203k program allows for the improvements of a home you are buying up to about $30,000. The FHA 203k program can help you expand your list of homes that you may want to buy in a particular area. FHA Loans are a great aid in assisting people looking to buy a home.
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