How
Much Home Can I Afford?
FHA Lending Amount
How
Much Home Can I Buy With My FHA Mortgage?
What
have you heard about qualifying for an FHA Loan?
- Only
inexpensive homes are allowed? Not true!
- You
need a lot of money for a down payment? Not true!
- You
need perfect credit? Not true!
- Your
credit score has to be at least 650? Not true!
- If
you ever declared bankruptcy or had a foreclosure, you're
out of luck? Not true!
None
of these things are true. To decide the price of the home
you can buy we look at:
- Your
income
- Your
other monthly expenses
- Your
credit history (this is important, but FHA's credit standards
are very flexible)
- Your
overall pattern rather than the individual problems you
may have had
Your
lender will be responsible for determining if you qualify
for an FHA loan, but the information below will help you
understand the process.
There's
one thing you must be prepared for, your lender will need
a lot of information from you. Don't let the lender's requests
upset you. They're just doing their job, and it will all
pay off. Once you're in your new home, it will all be worth
it! They must know:
- How
much you earn
- Where
you've worked
- Whether
you're single, married or divorced
- If
you've had credit problems in the past, they'll need to
know why
While
only a lender can actually qualify you for a loan, if you
follow the steps outlined here, you should get a pretty
good idea of whether you might be approved. You might even
become pre-qualified for an FHA loan right here!
Here
are a few key facts about FHA loans:
Maximum
loan amount: By law, FHA cannot insure loans that exceed
certain amounts based on the metropolitan area or county
in which you live. The highest maximum FHA mortgage right
now is $362,790. The lowest maximum amount is $200,160.
To see what the limit is in the place where you want to
live, go to the FHA
Maximum Mortgage Limits. This site lists U.S. territories
as states.
Maximum
financing: Depending on the state where the property is
located, the maximum FHA financing will be either 98.75%
or 97.75% of the appraised value of the home or its selling
price, whichever is lower.
Cash
required: FHA requires that the homebuyer invest at least
3% of the sales price in cash for the down payment and closing
costs. If the sales price is $100,000 for example, the homebuyer
must invest at least $3,000. However, the homebuyer can
use gifts from family, funds from local, state or government
agencies, or other sources for the down payment. Non-FHA
loans may not allow this.
Okay.
Let's get started.
The
first step is meeting FHA's basic eligibility requirements.
These involve some very general requirements that are pretty
easy for most people to meet. The second part is meeting
the qualification requirements. This is where your income,
your credit history and your savings are evaluated. It's
a little more complicated than basic eligibility, but don't
worry. Millions of people qualify for mortgages every year,
and you can too!
Generally,
to be eligible for an FHA loan, you must:
- Have
a valid Social Security Number (SSN)
- Be
a legal resident of the United States
- Be
of legal age to sign a mortgage in your state. There is
no maximum age limit for a borrower.
Even
if you are a U.S. citizen, you must still have a valid Social
Security Number (SSN). An individual Tax Identification
Number (ITIN) is not an acceptable substitute for a SSN.
U.S. citizenship
is not required for eligibility. When you indicate on your
loan application that you hold something other than U.S. citizenship,
the lender must determine your residency status from the documentation
you provide. If you are a permanent resident alien, you must
provide evidence of lawful permanent residency issued by the
Department of Homeland Security, Bureau of Citizenship and
Immigration Services (BCIS), formerly the Immigration and
Naturalization Service (INS). If you are a non-permanent resident
alien, you must show that you are eligible to work in the
U.S. by producing an Employment Authorization Document (EAD)
issued by BCIS.
Your
lender will decide if you qualify for a mortgage based on
the "Four 4 C's of Credit":
- Credit
history
- Capacity
to repay
- Cash
to close
- Collateral
Your
credit history involves what you've borrowed in the past,
and how well you've paid it back. Capacity refers to your
income and your ability to handle the monthly housing payments.
Cash to close refers to money for the down payment and closing
costs. Collateral refers to the home you're buying.
There
is one other thing that is important to remember: A lender
cannot reject your loan application based on a lack of credit
history or your decision not to use credit. If you do not
have an established credit history, or if you do not use
traditional credit, the lender must develop a credit history
from utility payment records, rental payments, automobile
insurance payments or other direct reports from credit providers.
It is
standard industry practice for a lender to use Automated
Underwriting Systems (AUS) to evaluate loan applications.
An AUS processes key information like your credit score,
your monthly income, how much you want to borrow, how much
cash you've saved, and the value of the property you want
to buy. Based on this information, the AUS produces a report
recommending approval or denial of your loan application.
Manual
underwriting involves the evaluation of your information
by a person called an underwriter in the lender's office.
The underwriter will apply his or her knowledge of FHA underwriting
standards to your information, and make a decision to approve
the loan or not.
Your
lender may use either or both types of underwriting to process
your loan, but there's one important thing you need to know:
you can't be turned down for an FHA loan just because an
AUS report doesn't recommend approval. If the AUS report
doesn't recommend approval, it could mean that your loan
has to be processed manually.
To see
if you might qualify for an FHA mortgage, complete the FHA
borrower qualifying worksheet below. If you enter accurate
information about your personal finances, and honestly answer
no on these questions about your credit history, you may
qualify for an FHA loan.e
This
sheet will help you see how you do with the "Four C's of
Credit."
Credit
history
Answer the following questions to see what kind of credit
history you have.
| Credit
Question |
Answer |
| Have
you filed for Chapter 7 bankruptcy in the past two years
or Chapter 13 bankruptcy in the past year? |
Yes
No |
| Have
you experienced a foreclosure in the past three years? |
Yes
No |
| Are
you currently delinquent on any Federal debts such as
Department of Education student loans? |
Yes
No |
| Do
you currently have any outstanding judgments against
you? |
Yes
No |
| Are
you currently late on your rent or mortgage, or have
you frequently been late in the past two years? |
Yes
No |
| Are
you currently late on any of your credit card, car loan
or other payments, or have you frequently been late
in the past two years? |
Yes
No |
Capacity
Use the following tables to estimate your monthly income
and debts:
| Income
Category |
Monthly |
| Your
salary |
$ |
| Your
spouse's/partner's salary |
$ |
| Pensions/social
security |
$ |
| Other
income |
$ |
| Total
monthly income |
$ |
| Debt
Category |
Monthly
Payment |
| Credit
card/car loans |
$ |
| School
loans |
$ |
| Alimony/child
support |
$ |
| Other
debts |
$ |
| Total
monthly payments |
$ |
Cash
You Have to Buy a Home:
Use the following savings categories to estimate your current
savings:
| Savings
Category |
Amount |
| Savings
account |
$ |
| Checking
account |
$ |
| Retirement
fund contributions |
$ |
| Other
savings |
$ |
| Total
savings |
$ |
Collateral
The price of the home that you can afford will be based
on your current monthly income and your current monthly
debts.
