What Are the Guidelines on Closing an FHA Loan?
To close on an FHA-insured mortgage loan, homebuyers must meet specific requirements which aren’t always present in traditional mortgage loans. Buyers need to stick to these tips if they want to ensure that their home-loan closure proceeds as easily as possible. Buyers that do not learn the basics of closing on an FHA loan might scuttle their own chances to acquire this type of financing.
Type of House
Buyers can simply close in an FHA-insured loan if they are purchasing the proper kind of home. This means a one- to four-unit residence. The FHA won’t insure mortgage loans for borrowers that are attempting to purchase homes with five or more living units. These buyers must rather take out a traditional home loan with a private lender, bank, credit union or other financial institution.
Credit Scores
The FHA in 2010 approved for the first time in its history a minimum credit rating for borrowers who want to qualify for an FHA-insured mortgage loan. This means that borrowers need a credit rating of at least 500 to close in an FHA loan. This requirement still is less strict compared to the credit scores that most traditional mortgage lenders require. These lenders typically, even though it varies, require that borrowers have no less than a credit score of 620.
Down Payment
To close in an FHA-insured loan, borrowers should come up with a deposit of at least 3.5 percent of a home’s cost. This means that borrowers purchasing a house for $150,000 has to come up with a deposit of $5,250. This is an easier task than what borrowers face from most traditional lenders. The majority of these lenders today require that borrowers come up with a deposit of 10 percent to 20 percent of the property’s purchase price. For a $150,000 house, that would mean from $15,000 to $30,000.
Home Appraisal
The FHA requires an appraiser determine the current market value of a house before permitting the mortgage loan to close. Lenders want to make sure a home is well worth the amount of money they are lending to borrowers.
Loan Limits
Lenders who give out FHA-insured loans must follow specific limitations specific to the county in which the house sits. Buyers can’t close in an FHA loan if they want to fund an amount of money within this limit. In San Francisco County, the FHA loan limit stood at $729,750 for a one-family unit in 2010. Buyers couldn’t take an FHA-insured loan for more than that amount in 2010.