All things FHA Loans! What are the requirements?

Getting into your new home using an FHA loan?

One of the numerous home loan options available through Fairway of the Carolinas, the FHA loan is among the most popular of its kind. Fairway of the Carolinas was ranked number #1 for FHA loans in 2020 by Nerd Wallet. Want to know why? It’s probably better to start with what an FHA loan actually is. Let’s find out. Then, we’ll explore why this type of loan is such a hit among homebuyers. And, finally, we’ll explain the basic requirements for becoming FHA-approved.

A 101

By definition, an FHA loan is a mortgage that is insured by the Federal Housing Administration — part of the U.S. Department of Housing and Urban Development. The FHA doesn’t dole out loans to prospective homebuyers but instead provides mortgage lenders with protection via mortgage insurance. 

FHA loans are widely used by first-time homebuyers and people with low-to-moderate incomes. In the next section, find out why.

The Perks

FHA loans make it easier for you to qualify for a home purchase or refinance. This loan option offers flexible qualification guidelines, which help those who may not qualify for a conventional mortgage. This flexibility in turn enables lenders to provide home loans with down payments as low as 3.5 percent of the purchase price. Fairway of the Carolinas is a Charlotte-area specialist in FHA mortgage loans, especially for first-time buyers or those who lack the means for a 20 percent down payment.

For people with a fairly low credit score or credit issues, our underwriters can explain some variances in payment and put your loan on the road to success. Even if a borrower files for bankruptcy, they can secure this loan after two or more years of re-establishing good credit.

The Requirements

As relaxed as FHA loan requirements are compared to most other home loan programs, there are still some important boxes you must check to gain approval. For the sake of our customers at Fairway of the Carolinas, let’s just consider the requirements in the two states we serve: North Carolina and South Carolina:

  • A credit score of 580 or higher (in most cases). Conventional loans require a minimum credit score of 620, so 580 is pretty generous, to say the least. One caveat here: With a score between 500 and 579, you may still be eligible if you make a down payment of no less than 10 percent of the purchase price.  
  • Choosing a home loan with a 15-year or 30-year term. Sorry if you were hoping for a 20- or 40-year payment plan. Your options are somewhat limited here.
  • A down payment of at least 3.5 percent. While this is pretty low all things considered, it’s not a zero down payment — which is actually allowed with USDA loans and a few others.
  • Purchasing mortgage insurance. In North Carolina and South Carolina, ponying up for mortgage insurance is mandatory for FHA loan recipients. Thankfully, it only requires a 1.75 percent upfront payment, but there’s a small annual premium to consider, too.
Conclusion

Even if an FHA loan isn’t right for you, all hope is not lost. Fairway of the Carolinas has a host of other loan programs all worth exploring when you have a minute. It’s likely there’s at least one that’s perfect for you and your financial situation. Contact us today if you have any questions or want to know more about particular loans. Any one of our highly trained mortgage advisers will be thrilled to assist you. We hope to hear from you soon.

*Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency. 

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