An FHA loan is a mortgage that is insured by the Federal Housing Authority. A borrower can get a loan with a down payment as low as 3.5%, which makes this an excellent option for first time home buyers. Besides the smaller downpayment, it is much easier to qualify for an FHA loan than a Conventional loan.
FHA Loan Requirements
- FHA loans have a lower credit score requirement than Conventional Financing. The FHA guideline currently is a credit score higher than 580.
- The minimum downpayment is 3.5% of the sales price of the home.
- MIP (Mortgage Insurance Premium) is required. MIP is the FHA version of PMI.
- Debt to Income ratio has to be less than 43%.
- The home must be the borrower’s primary residence.
- The borrower must have proof of employment and a steady income.
Some FHA borrowers may need help with the downpayment. FHA loan guidelines allow the downpayment to be a “gift”. Typically the gift will come from a family member. The lending institution will ask for proof of these funds, meaning they will ask for a copy of the gifter’s bank statement showing. This is a standard request, so be sure to alert your gifter, so they aren’t surprised when you come to them asking for this documentation.
FHA Loan Limits
Loan limits are updated yearly. In 2020, the FHA Financing loan limits for the Greater Baton Rouge area are $331,760.
What Are The FHA Appraisal Requirements?
FHA loan appraisals are a bit more stringent than Conventional appraisals. Not only is the appraiser reporting the market value of the home, they are also determining whether the home meets the agency’s minimum property requirements.
Some things that will not pass an FHA appraisal are:
- Peeling paint on the home
- A roof that has less than three years of life left
- Missing built-in appliances
- Broken or cracked window panes
- Missing or inoperable HVAC equipment
Make sure your Real Estate Agent knows that you are using an FHA loan. This knowledge will keep them from showing you properties that will not qualify.
Let us know if you need help finding a lender that can help you obtain an FHA mortgage. We are happy to make some introductions for you.