NEW FHA Loan Requirements – First Time Home Buyer – FHA Loan 2022

Are you a first time home buyer interested in buying a house using an fha loan in the 2022 housing market? What are the most recent FHA loan requirements? In this video, Huntington Beach Realtor, Jeb Smith discusses fha loans and the fha loan requirements 2022 like downpayment, credit scores, mortgage insurance as well as employment and income when buying a home.

Are you considering buying a home or maybe just starting the journey of figuring out how much you can qualify for and thinking of using an fha loan well in today’s video we’re going to dive into the fha loan requirements for 2022 we’re also going to talk about the pros and cons of using an fha loan and we’re also going to address some of the commonly asked questions

With regards to fha so that you can make informed decisions whether or not fha is the right loan for you i want to start today’s video by talking about the pros of using an fha loan some of the benefits if you will one of the biggest benefits of using an fha loan is that they require a three and a half percent down payment only three and a half percent down so

If you’re purchasing a hundred thousand dollar home that’s only thirty five hundred dollars down with regards to your down payment two hundred thousand seven thousand down three hundred thousand ten thousand five hundred down and the numbers go up from there another benefit of using an fha loan is that they allow credit scores as low as 500 in addition they have

Very flexible guidelines probably the most lenient of any loan program out there way more lenient than that of conventional so they allow you to have more monthly debt and actually qualify for more home with a lower down payment with a lower credit score using that fha loan and in today’s video we’re going to dive into that in a little bit more detail help you

Understand what all of that means so that you can decide if fha is the right loan for you one thing i do want to get clear is fha is not just for first-time homebuyers it can be used by anyone it can be used multiple times you can use fha as many times as you want when purchasing homes you could have owned properties in the past you could have owned investment

Properties you know one of the myths if you will out there is that fha is just for first time home buyers or just for those with low credit scores not the case you can have high credit scores and still benefit from fha and you can also benefit from fha with a lower down payment which we’ll talk about here in just a moment now in my experience many people go to

Fha because they either have lower credit scores or they have a lower down payment and those are really two of the big benefits of actually using fha because they do have that flexibility with regards to down payment and credit score so let’s take a minute here and talk about the down payment requirements that we mentioned earlier in the video so they only require

Three and a half percent down but you have to have at least a 580 credit score in order to put that three and a half percent down if you have a 579 credit score or lower than 579 they require a 10 down payment anything above 580 only requires three and a half percent down and as i mentioned earlier they go down as low as a 500 credit score so 500 credit score to

579 requires a 10 down payment 580 and above all the way up to 850 credit scores would require only a three and a half percent down payment now earlier in the video you heard me mention some of the pros of using an fha loan now one of the cons one of the downsides if you will with regards to fha is how they do their mortgage insurance now mortgage insurance is

Required on any loan when you put less than 20 percent down so with fha even if you did put 20 down you would still have mortgage insurance but let’s be honest if you had 20 to put down you probably aren’t doing an fha loan to start but let’s take a minute here and talk about what that actually means with regards to fha so as i mentioned a moment ago they require

That mortgage insurance with an fha loan now if you put three and a half percent down you know your credit score is above that 580 credit score and you put only three and a half percent down that mortgage insurance is going to stay on the loan for the life of the loan now that’s one of the downsides of using an fha loan one of the cons if you will whereas if you

Were using a conventional loan and you paid the principal balance down to where you had at least 20 equity you could get that mortgage insurance taken off of your loan whereas fha if you pay down the loan and you have 30 equity in that property you’re still not in a position to have that mortgage insurance removed because it stays on the loan for the life of the

Loan but fha does have an instance where it falls off after year 11 and that’s if you put 10 percent down up front with regards to your down payment so if you put 10 down to start after the 11th year after you pay your mortgage payments for 11 straight years that mortgage insurance will eventually fall off the loan now a lot of people reach out and ask well you

Know i didn’t put the 10 down initially but i have that that equity in my property now i have that 10 down will it fall off after year 11 at this point the answer is no it only falls off your fha loan when you put the initial 10 down payment up front and you pay your payments for 11 straight years at which point the mortgage insurance would fall off that loan now

I often get people reaching out to me asking questions about how mortgage insurance works on fha loans stay tuned to the end of the video where i discuss that in more detail give you some insight on how mortgage insurance works so that you know exactly how to calculate it when you’re using an fha loan now one of the other downsides of using an fha loan is they only

Allow them on primary residences your principal residents where you plan to live and if you’re planning on living in the property then it’s not a big deal but if you’re looking to buy an investment property fha won’t allow you to purchase it for investment purposes but here’s one of the cool things you know a lot of talk out there at the moment about house hacking

Can i buy a property using an fha loan and eventually turn it into a rental after the first year and the answer is yes you can live in that property as your primary residence for the first year and after that year is over you can actually turn that property into an investment go out and purchase another property using an fha loan and essentially do the same thing

Now while fha only allows you to use their loan for a principal residence or a primary residence you can actually purchase units with an fha loan which means that you can purchase a property live in one of the units and rent the other units out now i get people asking me all the time what is a unit i don’t understand is it multiple properties on the on the same

Site is it like an apartment building a unit if you will is is typically a door right so if you have a building that has two doors if you will there’s two houses so to speak as part of the same building that would be two units in some cases it might look like you know a small apartment building and there might be four doors and when i say doors i’m talking front

Doors right where you would initially walk through that property and so in that case that would be a four unit property an fha allows you to purchase up to four units using an fha loan as long as you plan to occupy at least one of those units as your primary residence which means you can rent the other three out and after the first year goes by you could actually

Turn the other one into a rental as well and go purchase again using an fha loan so that is one of the huge benefits of using fha but also kind of a downside if you were just planning on making that property an investment from the start so just keep that in mind there are opportunities out there using fha that allow you to house hack if you will and give you that

Opportunity to buy a property and eventually turn it into a rental and with that said they do only require three and a half percent down even when purchasing units so even if you bought four units all you have to put is three and a half percent down towards the down payment which is a huge benefit when purchasing a home now at the same time there are some other

Requirements that fha has with regards to purchasing property and that is if you plan to purchase a condo that condo needs to be approved by fha it needs to be an fha approved condo in order for fha to allow you to use their loan and not all condos out there are fha approved depending on where you are in the country more of them might be approved than not but one

Thing you can do is actually check the link in the description below you know you can go in there and find out if the condo complex you’re interested in is actually fha approved now keep in mind if it’s not fha approved there are ways to get it approved if the building if the community actually meets certain qualifications i’m not going to get in to that in this

Video but just keep in mind just because it’s not fha approved doesn’t mean that there’s not an opportunity to get it approved but it may require some work in order to do it now if you’re going through this video wondering who am i who am i to talk about fha loans my name is jeff smith i’m a real estate broker here in southern california i was actually a mortgage

Broker for over 10 years did a lot of fha loans still follow them today still you know guide clients with regards to loans although i don’t do them so do me a favor if you find any value in this content at all give me a thumbs up you know share it with somebody that you know that might be looking someone that may be looking for more information on fha because the

Goal here with this video is just to provide you unbiased information help guide you through that process so that you can make you know the best decision when choosing the loan for you now while we’re talking about loans i often get people reaching out to me asking me how do i apply for an fha loan so what i’m going to do is i’m going to put a link in the description

Below where you can go and find a mortgage broker that works in your area that has a great reputation that has experience that knows what they’re doing so that they can guide you through that process answer your questions you know go over the the qualifications with you you know run your credit run you through that process and get you approved now i have people

Asking me all the time should i call somebody online should i go into my local bank i would say no you need to work with a mortgage broker because brokers are typically more flexible on their guidelines they have several banks they can send your loan to whereas if you just go into a bank some banks don’t do fha loans at all and some have overlays on their programs

Now what is an overlay an overlay is essentially a guideline on top of a guideline and what i mean by that is that fha has loan requirements where they allow you to have as low as a 500 credit score including 10 percent down or a 580 credit score putting three and a half percent down as we mentioned earlier but if you were to go into your local bank if you will

They might have a guideline and overlay on top of that guideline that says you know instead of having a 500 credit score for 10 percent down we need you to have at least a 600 credit score to put that 10 percent down or in the case of the 580 with three and a half percent down they might say you need a 640 credit score so they have this overlay on the program that

Fha doesn’t require but the bank requires that they’ve you know they’ve set that in place so that you know the loans that they’re taking in are are higher quality if you if you will so that when they go to sell them on the secondary market they know they’re not going to have any issues selling that loan and so they put these overlays on there so if you want to

Find a mortgage broker a professional that may or may not have these guidelines or or if anything they have more options to choose from if they do run into a bank that has those overlays they have other options for you and brokers can typically you know get you past those overlays and usually have more lenient guidelines so if you are looking to get approved want

To talk to a professional click that link in the description below now let’s get back to talking about some of the additional fha loan requirements that you need to know if you’re planning on you know considering an fha loan to purchase a property fha loans do have loan limit restrictions which means they won’t lend more than a certain amount of money in certain

Areas across the country now if you’re in one of the low cost areas you know they won’t lend more than 56 362 on a single unit now if you’re in a higher cost area that number is 822 375 so there’s a big disparity there and you’re probably looking at this going well how do i figure out if i’m in a low cost area or a high cost area well i’m going to put a link in

The description below where you can actually go and check your county loan limits and they can tell you exactly the max loan amount in that county and as i mentioned earlier fha does allow you to purchase units and with units each unit that you add they allow a higher loan limit in that area so two units three units and four units allows you to qualify for more

Home again only putting that three and a half percent down now i’ve thrown these numbers on the screen or the low cost area as well as the high cost area now these numbers can change if they do change i will put them in the description below at the making of this video these are the current numbers now when people hear about loan limits they often reach out saying

Is there a limit on how much income i can make because i’m using only three and a half percent down and the answer is no you can make a million dollars a year and still qualify for an fha loan you can still use an fha loan regardless of how much income you make and on the other side there’s not a minimum income either as long as you can meet the debt to income

Requirements and still purchase the amount of property that you’re looking to purchase in your area then income doesn’t really matter income is only there to tell you how much you can qualify for based on your debt which is going to take me into my next loan requirement fha typically has a max debt to income ratio of about 57 which means that you can qualify for

More home using an fha loan than you can that of conventional because conventional the max guidelines are somewhere around 48 49 on the back end whereas fha allows that 57 debt to income ratio that i mentioned earlier now if you’re asking well what is debt to income ratio what does that even mean well basically what they do is they take all of your debts your monthly

Car payments your credit cards you know student loan payments they add those together and then they also add in your housing expenses your proposed housing expenses so they’re going to factor in your new mortgage payment that you’re trying to qualify for the property taxes the mortgage insurance the homeowner’s insurance if the property has an hoa they’re going

To add all of that up plus your monthly debts and then they’re going to divide that by your monthly gross income so if you make a hundred and twenty thousand dollars a year that’s ten thousand dollars per month so they’re going to take your monthly debts as i mentioned earlier and they’re gonna divide that by your monthly income in this case ten thousand dollars

Which is going to tell you your debt to income ratio and fha doesn’t allow you to have higher than a 57 percent now the next thing that fha requires is steady income and steady employment now that’s going to be required really on any type of loan that you get regardless of whether using conventional you’re using a va loan are you using an fha loan they want to see

That you have steady income and steady employment and typically what they want to see is two years on the same type of work in the same line of work the same type of job doesn’t have to be the same job right you can transfer from employer to employer as long as the line of work is similar so if you’re a server at a restaurant you work at say outback for a year

And then you decide to move to chili’s you know and you work there for a year that’s the same type of work so that your income would be steady in that case but what you can’t have is say that you’re that server at outback for a year and then you decide to leave and go be a real estate agent where you’re self-employed that’s not the same line of work so you might

Have issues qualifying in that case and another thing you need to have is steady income you can’t have income that’s you know fluctuating all over the place typically what you want to have is income that’s that’s pretty much the same year over year going up a little bit year over year and if it’s declining it’s not declining by much maybe a small percentage but

Income and employment need to be steady now earlier in the video i did mention some of the pros and throughout the video i’ve mentioned some of the cons but i did want to do a quick recap here just to help you understand you know pros versus cons some of the pros of fha are you know the minimal down payment the lower credit score requirements they also more lenient

Guidelines right those are the main things that are the pros of fha some of the downsides if you will you know only allowed to be your primary residents with regards to a purchase now you can purchase investment using units as i mentioned earlier but they do require you know that that condos are fha approved another downside there another one mortgage insurance

Does stay on the loan for the life of the loan unless you put 10 percent down in which case it does fall off after the 11th year and also we talked about the loan limit restrictions so depending on where you are in the country you might be capped on how much home you can actually purchase using an fha loan and lastly one thing we haven’t talked about is one of

The downsides of using fha is the market that we’re in at the moment it can be difficult to get an fha loan approved not from a qualification standpoint but get a seller to accept your offer in this market using fha and you might be saying why why is it difficult to get an fha loan accepted versus that of a conventional offer we’re both approved you know we both

Met requirements why because when a seller looks at offers say you’re in a multiple offer situation you’ve got somebody that’s putting ten percent down and you have someone putting three and a half percent down the perception is the person putting the larger amount down is more qualified and that doesn’t necessarily have to be true it’s just the perception from

The seller side and there are some things that you can do to overcome that you know if you’re working with a professional real estate agent out there professional can can you know help guide you through writing the contract to maybe offset some of the things some of the negative connotations of using an fha loan and if you need an experienced real estate agent out

There do me a favor click that link in the description below i can happily refer you to one as well just as i mentioned a mortgage professional earlier you know the same link below gets you in touch with both of them so if you do need a pro just let me know and i’ll make that referral for you but an experienced real estate agent can can help guide you through the

Process they can work with your lender to help your lender help the seller understand but you know in this market fha loans are frowned upon in some markets so just understand just because you’re approved and you’re using fha doesn’t necessarily mean it’s going to be a walk in the park when coming to get your offer accepted it is one of the downsides in this

Environment because of how competitive it is fha loans are a little more difficult to get accepted because of of the connotation out there the misunderstanding of what an fha loan actually is so hopefully this video has been helpful in helping you understand you know what you need in order to qualify for an fha loan now earlier in the video i did mention we would

Talk about how to calculate mortgage insurance what i’m going to do is throw you to a video here where i talk about mortgage insurance in more detail and i also link to a video here where i talk about fha versus conventional so you can get an idea of whether fha is the right fit for you maybe conventional is but anyway check out those videos and let me know your

Thoughts in the comments below but for now i appreciate you taking the time to watch i appreciate all the support hope to see you again soon have a great day bye

Transcribed from video
NEW FHA Loan Requirements – First Time Home Buyer – FHA Loan 2022 By Jeb Smith