Getting an FHA loan is a path to homeownership for many potential buyers, but approval isn’t automatic. It’s all too easy to end up being denied if the home buyer doesn’t meet all of the requirements. To increase the chances of being approved, potential buyers should do all of the following.
Know the Requirements
It is crucial for the buyer to know the current FHA loan requirements to ensure they will meet those requirements and be approved. If the buyer is unsure that they’ll meet any of the requirements, it’s good to know this ahead of time so they can make the necessary changes to improve their chances of being approved. A real estate agent, lender, or other professional can help potential buyers find out if they may meet the requirements.
Check Debt-to-Income Ratio
Buyers should go through their finances to determine their true debt-to-income ratio so they can determine if it’s too high to be approved for an FHA loan. Right now, FHA caps the ratio at 43%, so if it is higher than that, the person will likely not be approved. Those who have a higher ratio will want to look into what they can do to pay off their debts as quickly as possible. The lower their debts are, the higher the chance of approval.
Check Credit Scores
Potential buyers will want to keep a close eye on their credit score to see what it is and whether it needs to be approved. The FHA requires a minimum score of 580, though buyers can have a score as low as 500 if they have a down payment of at least 10% for the home. Those who have a lower credit score may want to look into ways to raise their credit score so they can have a better chance of being approved. Paying off debts can help with this, but make sure the closed debts are reported to the credit agencies so the credit score will improve.
Stay At a Job Longer
The FHA requires proof of employment and income. This helps with determining the debt-to-income ratio as well as showing that the person is employed and can pay the mortgage each month. Those who have just started a new job may want to wait until they’ve worked there for at least a few months so they have enough pay stubs to show their income level. If needed, they can work on improving their credit score, reducing the debt-to-income ratio, or saving more money while they wait to apply.
Save Up a Larger Down Payment
Though the FHA minimum down payment is only 3.5%, potential buyers may want to save more money. The extra money can be used for a larger down payment, to help cover closing costs, or to use to start an emergency savings account to cover repairs the home might need in the near future. It’s always a good idea to have extra money, even if it doesn’t increase the chance for approval, just in case it’s needed.
If you’re ready to buy a home, start by learning more about the requirements for an FHA loan and determine if you meet those requirements. If so, you can fill out the application to get pre-approved and start looking at homes to buy.
