Your Credit Score
When it comes to taking out loans, whether it’s for a car or a home, your credit score will always come into play. Fortunately, it’s getting easier for homebuyers to get approved for an FHA-backed home loan. If you currently have at least a 620 FICO score and 3.5% down, you may be eligible for an FHA 203(k) loan. Additional requirements need to be met for those whose FICO scores are below 620.
If you haven’t owned a home in the past three years, you would be considered a first-time homebuyer, and have a multitude of loan options made available to you – including the FHA 203(k) loan program. While 203(k) loan programs are a great financing option for first-time homebuyers, they are not limited to those who have never owned a home. As long as you live in, or plan on living in, the home in question and meet all other FHA 203(k) requirements, you’re eligible for the 203(k) loan program – regardless of your home owning history.
FHA loans are open to everyone but they’re often considered a first-time homebuyer program for a variety of reasons:
- First-time homebuyers don’t typically have much money for a down payment
- FHA loans only require at least a 3.5% down payment
- Homebuyers with lower credit scores may find themselves eligible for an FHA 203(k) loan
- Gift funds are allowed as a partial or full down payment for an FHA 203(k) loan but documentation is required including a letter that no repayment of the gift funds is expected.
FHA Maximum Debt-To-Income Ratio of 31/43
As with other loans, FHA loan requirements include a maximum debt-to-income ratio. When you apply for an FHA loan, you’re required to disclose all debts, open lines of credit, and all sources of income. From this information, your Mortgage Loan Originator will evaluate your debt-to-income ratio. According to lenders, the FHA allows you to use 31% of your income towards housing costs, and 43% towards housing expenses and other long-term debt. If these numbers seem unforgiving, the FHA does offer some flexibility under the right circumstances.