FHA loans are great for low- to moderate-income families because of the low down payments, low closing costs, and easy credit qualifications. First-time home buyers are attracted to FHA loans because when somebody is buying their first home they are usually too young to have built up a lot of credit. Because FHA loans have no strict credit requirements, even people with no credit (due to inexperience) can get financing.

All of these individuals might benefit from an FHA loan. However, there is definitely a “market niche” for FHA loans. That is, there is a certain type of person for whom FHA loans are best. This person:

1. Has some credit problems that prevent him or her from getting prime-market mortgage loans.
2. Can handle the FHA 3.5% down payment.
3. Wants to purchase a house that costs less than the
FHA maximum loan limit.

If you meet these criteria, then an FHA mortgage loan is probably right for you. To further maximize the benefit of an FHA loan, here is what your income, credit, loan amount, and cash reserves should be:

1. Income: Your income can be relatively low, but more importantly it should be steady for at least the past 2 years. If not, the FHA might still insure your loan, but proving a steady source of income (which can be from a number of sources) is always beneficial.

2. Credit: Most people who get an FHA loan have credit that doesn’t meet prime pricing requirements. See “Credit Requirements” below for more information.

3. Loan Amount: FHA mortgage loans are most beneficial to people who can purchase a house without going over the FHA loan limit. These loan limits are
different in every county, so head to the official FHA mortgage limits webpage and
see what the limit is for your area. Make sure that the price of the house you want to purchase is below this limit.

4. Cash Reserves: It would be best if the borrower had cash reserves that exceeded the 3.5% down payment that FHA requires. To figure out what your down payment will be, just take the price of the house you want to buy and multiply it
by .035. That is, if the price of your desired house is $100,000 then your down payment would be $3,500 because 100,000 X .035 = 3,500.

If after reading this section you no longer think an FHA loan is right for you, then you still have other options for financing your home purchase. Two popular mortgage options are the “interest-only mortgage” and the “option adjustable-rate mortgage.” Read the next page for more information on these two types of mortgages, otherwise skip to the section, “FHA Mortgage Loan Requirements” to continue learning about FHA mortgage loans.

Contact a FHA Specialist Now!.