If you're short on cash for a down payment, a home loan backed by the Federal Housing Administration (FHA) might be an option. FHA home loans tend to be less restrictive than conventional mortgages. With an FHA loan, the government provides additional guarantees to the lender in case you default. If you're just beginning to establish your credit, an FHA home loan can make home ownership accessible.
Debt to Income
If you're single, you can still qualify for an FHA home loan as long as you meet the debt-to-income ratio requirement. Under FHA guidelines, your mortgage payment cannot exceed 31 percent of your gross monthly income. If you make $3,000 a month, your monthly mortgage payment should be approximately $920 or less. FHA guidelines also limit your monthly debt and mortgage payments to 43 percent of your gross monthly income. If your proposed mortgage payment is $920 a month with a $3,000 income, your other debt obligations should not exceed $370.
FHA loan standards require that you demonstrate a history of reliable employment and income. You'll need to show two years of steady employment and consistent income. When you apply for an FHA home loan, be prepared to show copies of your W-2 or 1099 forms. You'll need to provide the names and addresses of your employers. In most cases, you'll also need to provide copies of your tax returns for the past two years and copies of your bank statements.
A single applicant for an FHA home loan must meet certain credit guidelines. If your credit report shows a history of on-time payments, you will probably qualify. A credit report that shows a history of slow payments and delinquent accounts may disqualify you. Bankruptcies may be an issue, depending on the type. A Chapter 13 bankruptcy settlement is okay as long as you have made a year's worth of payments on time. Chapter 7 bankruptcies must be at least two years old.
One of the good things about an FHA loan is that you can have a non-occupant co-signer. This means that a parent that won't be living in the house can co-sign on the loan. If you don't meet the income and credit requirements on your own, a co-signer may be a helpful option. Co-signers can also help you with the down payment requirements. FHA guidelines require a down payment of 3.5 percent, but the money does not have to be your own. Down payment assistance can be gifts or grants from relatives, employers, or non-profit agencies.
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