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How to Buy a House with an FHA Loan

How to Buy a House with an FHA Loan

Wondering how to buy a house with an FHA loan? It’s easier than you think! With generous qualification guidelines and low down payment options, the FHA has made it easy to buy a house with low income. To make things even easier, we’ve assembled all the information you need into one helpful guide!

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Looking for other low income home buyer options? Click here!

What is the FHA?

The Federal Housing Administration is part of the US Department of Housing and Urban Development (HUD). It’s also the only government agency that is entirely self-funded and operates without any expense to taxpayers!

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This agency began in 1934, when the housing industry was struggling. Two million construction workers had lost their jobs and only four in 10 American households owned their homes. At the time, mortgages were awful. Buyers could only borrow half of a home’s value and had to repay the entire amount within three to five years. The last payment was a balloon payment that low income families simply couldn’t afford. The FHA helped change that by financing homes for returning veterans and the elderly, disabled and low income populations.

What are FHA Loans?

FHA loans are loans that are insured by the Federal Housing Administration (FHA). They are not issued by FHA or the federal government; they are merely insured by them.

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This means that if you stop paying your mortgage for any reason, you’ll still go through the foreclosure process. However, even if you lose the home for nonpayment, the lender will still be paid by the Federal Housing Administration. This allows lenders to provide financing to “higher risk” groups like low income earners because they know they’ll still get their money even if you default (stop paying) on the loan.

FHA provides mortgage insurance on loans throughout the United States and its territories. In fact, the FHA is the largest insurer of mortgages in the world!

Why should I consider a FHA loan?

There are many benefits to using an FHA loan to purchase your home.

Down payments can be as low as 3.5 percent with an FHA loan! You can also use gifts from others or government grants to help pay your down payment and closing costs.

Credit scores can be as low as 500 with an FHA loan! However, if your credit score is less than 580, you will have to pay 10% toward your down payment. In some cases, the FHA will make allowances for applicants with non-traditional credit history or insufficient credit.

Closing costs can also be paid for by the seller! With an FHA loan, the seller can pay up to 6 percent of the home’s price toward the closing costs!

Repair costs can be included in your FHA loan! The FHA offers a special loan product, called a 203(k), which finances the projected value of the home after repairs are completed. This can give you up to $35,000 for nonstructural repairs on your home! In some cases, you can also use these funds to help pay for your rent or other temporary housing while repairs are completed.

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Who qualifies for FHA loans?

The FHA makes qualifying easy! The FHA does not specify a minimum required income. To qualify, you need to have a credit score of at least 500 and a reasonable debt-to-income ratio (31/43). The FHA will even approve applicants with a recent Chapter 13 (1 year) or Chapter 7 bankruptcy (2 years)!

The debt-to-income ratio means that your new house payment (including principal, interest, taxes, insurance, homeowners association dues, etc) should not consume more than 31% of your total monthly income. Your mortgage plus all your other monthly expenses (such as student loans, car loans, credit cards, etc) should not exceed 43% of your monthly income.

Remember that FHA loans are issued by lenders across the country and each lender can set its own minimum requirements. Some may choose to set qualifications that exceed the FHA’s minimums. Expect that your job stability, credit history and other factors may be included when your lender decides whether or not you qualify for an FHA loan.

How do I get a FHA loan?

You will need to meet with an FHA-approved lender to begin the application process. You can find one by searching the HUD Lender List! 

Looking for more ways to save money and get free stuff? We can help with that!

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Have too much month at the end of your money? Me too - and that's how Low Income Relief got started. I have over 20 years of professional research and writing experience. Over the years, I've worked as a novelist, journalist, ghostwriter and content creator. My work has been featured in various print and online publications, including USA Today, eHow.com, Livestrong.com, Legal Beagle, The Daily Herald (Provo, Utah), The Chronicle (Centralia, WA) and others. At Low Income Relief, I use my professional research and reporting experience to help low income families save money and make ends meet. It's been my full-time job since 2016, and it's truly an honor to serve you.

Tona W. Jones

Thursday 7th of April 2022

I don't know how to do this I need a house first then a lender to help me I am on ssi and rsdi I get 861 per month and right now only bills are phone and car insurance I need a home I am 62 staying with other people

Isaac

Tuesday 12th of April 2022

Low Income Relief is an information service and does not provide cash or items directly. You will need to search our website for information about organizations that can help you meet those needs. Chat with Lira, she might be able to help! https://lowincomerelief.com/chat/

Elisha e Maher

Friday 16th of April 2021

How would i go about getting into any of these housing programs for me and my family

Hannah Benge

Tuesday 20th of April 2021

There is a link at the end of the article. Check here to find where to apply https://www.hud.gov/program_offices/housing/sfh/lender/lenderlist. Thanks! -Hannah

Pat

Wednesday 2nd of December 2020

What about being retired (for now) so I only have SS. My wife is still working and earns about 45,000 i think a year. I have 175,000.00 to 200,000.00 to put down and would like to buy a 375,000 to 425,000 home. My current home is paid off and has a value of around 210 to 240. We want to rent out our current home if we can get into a larger one. I retired Jan 31st of 2020 and my credit score at the time was in the 800's though i don't know what it is now since I retired. We have no car payments or loans of any kind. So what do you think 'possible' or 'impossible'?

Hannah Benge

Monday 7th of December 2020

We would not be able to speak as far as what is or is not possible. We do not know about mortgages professionally or anything. However, you can check this out for help https://lowincomerelief.com/buying-house-with-low-income/. Thanks -Hannah