FHA Loan Disqualifiers: Don’t Get Buried Under the Dream Home!

FHA Loan Disqualifiers: Don’t Get Buried Under the Dream Home!

Hey house hunters!   Today, we’re setting our sights on the FHA loan disqualifiers, that’s famous for its accessibility for first-time homebuyers. What will disqualify you from an FHA loan?

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While FHA loans are known for being more lenient than conventional loans, there are still some hurdles you’ll need to clear to qualify.  Don’t worry, though!  By understanding the potential roadblocks, you'll know what will disqualify you and you can proactively plan your financing strategy accordingly.

But first, some exciting alternatives!  While FHA loans are great, they might not be the only option.   Here are some other options to consider:

• USDA Loan: Perfect for rural homebuyers with lower income 
• VA Loan: Designed for veterans and active military personnel with great benefits 
• Conventional Loan: For borrowers with strong credit and a larger down payment 

Now, let’s get back to those FHA loan disqualifiers!  We’ve categorized them into three main categories: Financial Fitness, Credit Character, and Property Pointers.

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Financial Fitness: Can You Afford the Dream?

• Debt-to-Income Ratio (DTI): This number measures how much of your gross monthly income goes towards debt payments (housing, car loans, credit cards, etc.).  FHA lenders typically prefer a DTI below 56.9%.  Action Plan: Pay down existing debt, reduce credit card balances, and consider income-boosting options.
• Down Payment:  While FHA loans allow for a minimum down payment of 3.5%, the lower your down payment, the higher your private mortgage insurance (PMI) will be.  Action Plan: Aim to save more for a larger down payment to reduce PMI costs.
• Employment History:  Lenders want to see stable employment. Generally, you’ll need at least two years of continuous employment in the same field.  Action Plan: If you’re self-employed, be meticulous with your tax documentation.

Credit Character: Building Trust with Lenders

• Credit Score:  FHA loans have a minimum credit score requirement, typically 500 for a 10% down payment and 580 for a 3.5% down payment.  However, lenders may have their own higher credit score requirements.  Action Plan:  Check your credit report for errors and work on improving your score through responsible credit card use and on-time payments.
• Derogatory Marks:  These include things like bankruptcies, foreclosures, and late payments.  Recent bankruptcies or foreclosures will likely disqualify you, while older blemishes may require explanation to the lender.  Action Plan:  Address any outstanding delinquencies and focus on rebuilding your credit history.
• Insufficient Credit History:  If you’re new to credit or primarily use non-traditional credit options (rent payments, utility bills), establishing a credit history with a credit card you use responsibly can help.  Action Plan:  Become an authorized user on someone else’s credit card or obtain a secured credit card to build your credit profile.

Property Pointers: Making Sure Your Dream Home Qualifies

• Minimum Property Standards (MPS):  The property you’re buying must meet FHA standards for safety, security, and structural soundness.  This includes things like a functioning roof, proper plumbing and electrical systems, and safe access to the property.  Action Plan:  Factor in potential repair costs when considering an offer on a property.
• Multi-Unit Properties:  FHA loans are generally not allowed for multi-unit properties (duplexes, triplexes, etc.) unless you intend to occupy one unit as your primary residence.  Action Plan:  Explore other loan options if you’re interested in a multi-unit property as an investment.
• Manufactured Homes:  FHA loans can be used for certain types of manufactured homes, but they must meet specific requirements regarding location and permanency.  Action Plan:  Consult with your MacLagan Home Loan specialist to determine if your desired manufactured home qualifies.

Bonus Tip: Be Transparent with Your Lender!

Throughout the loan application process, open communication with your MacLagan Home Loan specialist is key.  Don’t hesitate to disclose any financial situations that might raise a red flag.  The earlier we understand your unique circumstances, the better we can strategize to overcome potential hurdles and find the right loan option for you.

Remember: Even if you encounter a temporary roadblock on your FHA loan journey, it doesn’t mean homeownership is out of reach.  By addressing any shortcomings and working with a qualified mortgage broker like MacLagan Home Loans, you can develop a plan to achieve your dream of homeownership.

Let’s Recap the FHA Loan Disqualifiers:

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Financial Fitness:

• High Debt-to-Income Ratio
• Insufficient Down Payment
• Unstable Employment History

Credit Character:

• Low Credit Score
• Derogatory Marks on Credit Report
• Limited Credit History

Property Pointers:

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• Property Doesn’t Meet Minimum Property Standards
• Multi-Unit Property (unless occupying one unit)
• Non-Qualifying Manufactured Home

We’re Here to Help!

At MacLagan Home Loans, we believe everyone deserves a shot at achieving the dream of homeownership.  Our experienced mortgage brokers will guide you through the entire loan process, from pre-qualification to closing, ensuring you understand your options and secure the best loan program for your situation. Ready to get started?  Contact Alex MacLagan and his team today for a free mortgage consultation.  We’ll answer your questions, assess your eligibility, and help you chart a clear path to your dream home! Just complete our FHA Home Buyer Survey by clicking the button below and schedule a call with us.

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