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FHA Loan Requirements (2020): A Clear And Helpful Guide - YouTube
Channel: Win The House You Love
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Hey, Kyle here with kyleseagraves.com.
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My goal is to help you get a
crystal clear home loan that
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helps you win the house you love.
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So in today's video, we're talking
about the requirements for FHA loans.
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If you watch the previous video on
conventional versus FHA, you might
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have decided FHA is the option for
you and FHA loans are fantastic loans.
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They're actually a program created
by the government, some years ago
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to help, mainly, people get into
home ownership for the first time.
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So they were one of the first true first
time home buyer programs, but now FHA has
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morphed into such a large program that
so many lenders carry that it's not just
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for first time home buyers and FHA has
really great, requirements and, rules on
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how you can get the FHA loan that make
it really accessible for a lot of people.
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There's a lot of pros.
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There's also some cons of we'll
talk mainly about some of the
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requirements for getting an FHA loan.
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So right up front, the two big things
that people are concerned about when
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when we're talking about requirements,
is how much money do I have to put down
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and what does my credit score have to be?
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So, first of all, how much
money do I have to put down?
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FHA will allow you to do a
minimum down payment of 3.5%.
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As long as your credit
score is 580 and above.
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Okay.
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So that is one of the lowest down
payments that you can get outside of
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conventional sometimes can go down to 3%.
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USDA will do 0% and VA will do 0%,
but 3.5% down is a fantastic option
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if you have a credit score, 580
and above, which most people do.
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If you have a credit score of less than
580 down to 500, you'll be required
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to put 10% down and you might have
some extra reserve requirements,
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which means you need some extra money
in the bank to close on the loan.
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Also with ,FHA the requirements in terms
of how much debt you can have versus
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how much income you can have, are a lot
more lenient than conventional loans.
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So conventional loans tend to
be a little bit strict on, what
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your credit score looks like.
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Normally conventional loans like a
higher credit score, and they want
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you to have a lower debt to income
ratio, which basically it means how
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much monthly debt obligation do you
have divided by your total income.
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So, FHA will allow us to go
up to 56% most of the time.
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So you probably don't know your
debt to income ratio offhand,
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but 56% is a pretty high number.
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That's saying that if you took your income
times 0.56, that's how much monthly debt
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you could carry, every single month,
including including your housing payment.
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It's pretty high up there.
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Which means that if you have a,
a good amount of debt or maybe
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student loans, FHA might be a really
great option for you because it
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allows, some more leniency in there.
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Or if you have maybe income on the
lower side, maybe you're in a high cost
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area and you need a little bit more
flexibility FHA does not have as strong
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requirements on that debt to income ratio.
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So then that brings us to student loans.
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Student loans are a big debt that
we're seeing kind of sweeping across
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the nation and student loans, how
do they affect you with an FHA loan?
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So your student loans are either
going to report a monthly cost, a
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monthly minimum cost on your credit
report and if it doesn't, so if you're
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loans are deferred or in forbearance,
then what will happen is your lender
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will take 1% of your balance and
use that as your monthly payment.
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So for instance, let's say you
had $10,000 in student loans and
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it was deferred until next year.
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What your lender would do is take that
10,000 and multiply it times 1% and then
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use that as part of your debt income
ratio there if there wasn't like a
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minimum payment showing up on the report,
also some requirements with FHA loans.
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They're a little bit more strict in terms
of with the property is allowed to look
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like, and not how it looks cosmetically,
but FHA is really concerned about property
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requirements when it comes to what
they call health and safety standards.
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So, conventional loans are a lot
more lenient on what you can buy.
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For example, most people will buy
foreclosed properties with a conventional
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loan, but FHA is more strict and they want
to make sure that everything in the home
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meets their health and safety standards.
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So that means, you can't have
things like missing rails on steps.
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You can't have chipping paint, can't
have broken windows, you cannot have
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things rotting or things torn down.
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You need to make sure that the home
is, has no health and safety issues.
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And if there's any possibility of it, then
an FHA appraiser is going to call it out
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and want it fixed before you've moved in.
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So it's something to be aware of.
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There is an FHA loan called a 203K
that allows you to do some rehab,
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but that involves a little bit
more than just the traditional FHA.
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So if we're sticking to traditional FHA
property requirements are a little bit
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more strict on the FHA side, your realtor
and mortgage advisor can help you navigate
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some of those restrictions as well.
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As far as asset requirements for
FHA loans, so how much money do
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you have to have in the bank?
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FHA allows you to take all of
the funds needed as a gift.
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So for instance, if your down payment
and closing costs, let's say the
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whole thing together is going to
cost you 10 grand out of pocket.
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You are allowed to get a gift from a
family member for that entire amount.
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Some loan products don't let
you get a gift for all of it.
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Sometimes they want, you know, a certain
requirement in there, but you're allowed
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to get a gift for the full amount of the
down payment and closing costs as well.
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And finally, one of the biggest,
drawbacks is the mortgage
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insurance requirement on FHA loans.
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So they're fantastic loans, but
what happens is FHA loans are
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given out by lenders across the
nation, but the federal government
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is the one who backs these loans.
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It's, it's called a, insured loan, which
means that the government makes sure that
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if the lenders ever have to foreclose on
a property, that they'll get their money
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back because the government insures it.
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So the person who has to foot the bill
for the insurance is you unfortunately.
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And that comes in two ways.
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The first way is there's an
upfront mortgage insurance premium.
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So all that means is you take
your initial loan amount.
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Let's say it was a
hundred thousand dollars.
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FHA is going to charge 1.75%
and add it to the loan.
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So instead of having a loan for a
hundred thousand dollars, you now
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have you now have a loan for $101,750.
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Okay, so that's one that one thing to
keep in mind, and then you also have
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to pay monthly mortgage insurance.
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Over the life of the loan.
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That mortgage insurance will not
fall off, unless you put 10% down, if
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you put 10% down, then the mortgage
insurance will drop off after 11 years.
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But if you put any less than 10%
down, mortgage insurance will be there
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for the entire duration of the loan.
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So you have this really great flexibility.
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It comes at the cost of mortgage
insurance, but then another pro to,
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kind of offset some of the cost of
the mortgage insurance is since it's
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backed by the government, you usually
can get really low interest rates
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than any other loans on the market.
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Okay.
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So the reason why the interest
rates lower is because the lenders
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have less risk of losing their
money since the loans are insured.
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So if you get an FHA loan, that
interest rate should be a lot
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lower than anything else you're
seeing on the conventional side.
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So if you are going with an FHA loan,
make sure that it's a, you know, it has
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a low interest rate because you're going
to be paying that mortgage insurance.
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You need these costs to offset
each other a little bit.
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You can't be paying a lot in mortgage
insurance with the upfront and the
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monthly mortgage insurance plus
paying a high interest rate, so
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something to definitely keep in mind.
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Overall FHA loan requirements are pretty
lenient as far as what can go in on a
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pretty traditional loan, it's hard to
find any other loan that is going to
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be more relaxed in its requirements,
unless you're going into something like
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a portfolio loan, which has really high
interest rates, probably around the 7%.
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Those are loans where you can do one
day out of bankruptcy or, only, you
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know, no income stated type loans.
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You can do those loans and
have more lax requirements,
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but they cost you a lot more.
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FHA is a fantastic option if you're
looking into getting a loan in the easiest
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way possible, the best way to figure
out if it's the right loan for you is
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to talk with your mortgage advisor and
see what options do you have available.
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And can you compare the cost
of the conventional versus FHA?
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If you qualify for both and what's
going to be the total cost over a
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period of time, the requirements for an
FHA loan really are not too terrible.
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Usually what you're going to find is
that 3.5% down, you need to make sure
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the home is pretty much ready to move in.
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You're also going to have those
mortgage insurance requirements,
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and you're a lot more lenient on
the requirements it's of debt and
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income, that you're allowed to have.
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So, let me know, let me know some
of your thoughts and questions
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about FHA loans in the comments.
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I'd love to answer some questions
that you have, or hear some of your
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experience with an FHA loan in the past.
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Thanks so much for watching.
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