Unless you pay all cash for a Lake Havasu home purchase, you probably need to contend with a lender. They may offer you the option of a conventional loan, a government-backed loan, or a VA loan. While conventional loans are the most common, many buyers opt for a government-backed loan. However, unless you are a military veteran or active member, a VA loan is off the table. That leaves FHA and USDA loans. Most Havasu home buyers utilize an FHA loan. What exactly do you know about it and how it works?
FHA Loan Explained
What is an FHA Loan?
This type of loan is backed by the Federal Housing Administration (FHA). However, that does not mean that they actually issue any money or approve a mortgage loan. Instead, they insure the loan. This helps buyers with a lower credit score obtain approval for mortgages that they would not receive with a traditional private lender.
In order to qualify for this type of loan, you must have at least a 500 credit score. But just while the FHA may insure a buyer at that low of a score, you still need to meet the lender’s requirements. Typically, that means a score of at least 620. Also, you must put at least 3.5% down to qualify. However, if your score falls below 580, you might need to come up with 10% down to qualify. Then, your debt-to-income ratio cannot go above 40%. Additionally, your income must be enough to show that you can pay back your loan. The amount depends on the size of your loan. Furthermore, you need to provide a valid photo-ID and social security number, copies of financial records (such as bank statements, 401k documents, investments, etc.), and current paycheck stubs.
What Kind of Property Qualifies?
In addition to the borrower’s qualifications, your property must meet certain requirements to qualify as well. For example, the property must be your primary residence. Multi-unit properties qualify but only if you plan on living full-time in one of the units. Finally, the property cannot be bought to “flip”.