Since 1965, the Federal Housing Administration, or FHA, has been a component of the United States Department of Housing and Urban Development. However, the FHA was established more than 30 years earlier as part of the New Deal.
Aside from the Dust Bowl drought and a stock market crash, the Great Depression saw a housing market bubble bursting. By early 1933, approximately half of all American homeowners had fallen behind on their mortgage payments.
The Federal Housing Administration (FHA) was established as part of the National Housing Act of 1934 to stop the flow of foreclosures and make homeownership more accessible. It found the 20 percent down payment as a new norm by guaranteeing mortgages for up to 80 percent of a home’s worth — before, homeowners could only borrow 50-60 percent of the home’s value.
Currently, the FHA insures loans for over 8 million single-family houses.
How easy is it to acquire an FHA loan right now?
Even though the FHA’s minimum loan criteria have not altered, FHA lenders favor applicants with higher credit ratings. According to an ICE Mortgage Technology study, more than 74% of FHA applicants had FICO scores of 650 or higher in May 2021, with an average score of 678 for FHA home loans Utah.
According to a National Association of Realtors study of real estate agents conducted in April 2021, sellers were less willing to accept a bid supported by an FHA loan than one secured by a conventional loan. Seller views of FHA inspection and appraisal procedures and FHA down payment amounts were among the reasons given. This, combined with stricter lender criteria, may explain why FHA loans were used in just 10% of the single-family house and condo acquisitions in the first quarter of 2021, as per Attom Data Solutions, a real estate data provider.
In May 2021, it took 61 days longer on average to close an FHA purchase loan than it did in May 2020 – 61 days compared to a prior average of 46 days. Nevertheless, conventional purchase loans were completed in an average of 49 days in May 2021.
To qualify for an FHA loan, you must meet several criteria. It should be noted that these are the FHA’s minimum criteria, and lenders may have additional restrictions. Compare offers from multiple FHA-approved lenders to ensure you obtain the best FHA mortgage rate and USDA home mortgage terms.
It’s crucial to remember that lenders may have different requirements, especially for Utah FHA refinance.
- Credit score
An FHA loan entails a least credit score of 500. If your credit score is between 500 and 579, you can still apply for an FHA loan, but you’ll need to put down a higher amount. Remember, these are FHA standards; individual lenders may have a higher minimum credit score requirement.
- Funds for a down payment
If you have a credit score of 580 or above, you can expect an FHA mortgage 3.5 down payment. If your credit score is between 500 and 579, you’ll have to put down 10% of the buying price.
The good news is, it does not have to come from savings ultimately. Gift money can be used for your FHA down payment provided the donor supplies a letter with their contact details, relationship to you, the value of the gift, and a declaration that no return is anticipated.
- Debt-to-income ratio (DTI)
The FHA necessitates a DTI of less than 50, which indicates that your entire monthly debt payments cannot surpass 50% of your pretax earnings. This covers any debts that you are not actively repaying.
Your FHA loan underwriter will include 1% of the total loan amount as the monthly payment amount for student debts in deferral. Underwriters will use 5% of the total loan amount to determine your DTI for other sorts of loans that you aren’t currently repaying.
- Approval of property
The property you are attempting to purchase with an FHA loan, whether a condo, a house, a mobile home, or multifamily housing, must fulfill FHA minimum property criteria.
The FHA demands a separate (and distinct from) house inspection appraisal. They want to make sure the house is a good investment — that it is worth what you are paying for it — and that it satisfies basic safety and livability requirements.
For an FHA 203(k) renovation loan, the property may be appraised twice: once “as is” to assess its current condition, and once “after improved” to estimate the value once the work is finished.
- Mortgage protection insurance
Every loan includes FHA mortgage insurance. When you receive an FHA loan, you’ll pay an upfront VA home mortgage insurance premium (which can be rolled into the overall loan amount) and then make monthly payments.
If you begin with a down payment of less than 10%, you will be required to pay mortgage insurance for the life of the loan. Those who put down 10% will have to pay FHA mortgage insurance for 11 years.