October 22, 2017

Understanding the Rules Before You Go House Hunting

An FHA mortgage provides first time homebuyers with the opportunity to get a home of their own at an affordable interest rate. The FHA does not finance these loans directly. However, they provide backing to lenders to ensure that if the homeowner defaults on the loan, the lender will not lose their money. While the FHA has been insuring mortgages for over 75 years at this point, rule changes recently has made this process more difficult than it has been in the past. To see if you can get one of these loans, you need to understand them first and know the up to date qualification requirements.

In order to qualify for an FHA mortgage, a borrower must meet minimum qualifications set forward by HUD. One of the qualifications is meeting the FHA minimum credit requirements. Financing is available for up to 96.5%. That means the borrower must cover the other 3.5% with their own money or funds borrowed from family. The types of dwellings eligible for this financing are one to four units. So a single-family dwelling, a duplex, a triplex, or a quadruplex would qualify. However, a 10-unit apartment building would not.

There is also a limit on the amount of FHA mortgage insurance available for each mortgage. Based on current housing costs in a particular area, HUD sets limits on mortgage coverage for a certain type of dwelling. As an example, the mortgage limit for a single-family dwelling in Charlotte, NC in 2010 is $303,750. In the same area, the four-family dwelling limit is $584,150. This means if a dwelling costs more than the limit, the borrower must cover the difference with other means.

Other requirements for getting an FHA mortgage include having a steady employment history for 2 years. You also need a consistent or rising income level for those same two years. For the past two years, you cannot have had more than two 30-day late payments. Any bankruptcy must be clear at least two years and a foreclosure must be clear for at least three years. In the time since a bankruptcy or foreclosure, your credit must be good for that entire time. The mortgage payment cannot be more than 30% of your monthly income before taxes. Before you go out house hunting, you need to see if you can qualify for a mortgage first. This will save you both time and hassle in the long run.