An Alabama FHA-insured loan is backed by the Federal Housing Administration’s (FHA) who issues the mortgage insurance and the loan is provided by a lender that the FHA has approved.  FHA mortgage insurance protects lenders against losses. In the past, they have made it possible for people in the United States with lesser incomes to borrow money and buy homes they otherwise could not afford.

Compared to conventional loans, FHA loans offer several benefits. They have more flexible credit and income restrictions, which is an excellent choice for those who might not be eligible for conventional loans. FHA loans require a lower down payment, typically 3.5% of the home’s purchase price. First-time homebuyers may find it easier to buy houses. 

FHA loans have less stringent restrictions on the kinds of homes that may be acquired and higher debt-to-income ratios. Additionally, because the Federal Housing Administration backs FHA loans, lenders can feel better knowing they will be compensated if a borrower defaults on the loan.

How To Qualify For An Alabama FHA Loan

There are several requirements a prospective homebuyer need to meet to qualify for an FHA loan.

• Credit

Borrowers will need a credit score of 580 or above to be eligible for the low down payment option of 3.5%. Because of the minimal down payment required and less-than-perfect acceptable credit, being approved for an FHA loan is typically one of the more straightforward mortgage loans available. 

Applicants with FICO scores lower than 580 may still be eligible for an FHA loan; however, they must make a minimum down payment of 10 percent and comply with any other applicable requirements.

• Income

Generally, the requirements for qualifying for an FHA loan are less stringent than those for a conventional loan. The maximum debt-to-income ratios are 31% and 43%. This indicates that the monthly debt load should be 43% of the monthly income, while the housing payments should be 31% of the gross monthly income. However, with compensatory factors, these recommendations permit larger ratios of up to 56.9%.

• Assets

The asset requirement for an FHA loan includes a minimum 3.5% down payment. In addition, the borrower is expected to maintain a minimum amount of reserves. Typically, these reserves comprise one month’s worth of principal, interest, property taxes, insurance, and, if necessary, homeowners association dues. The reserves must come from the borrower’s own funds; they cannot be gifts, seller concessions, or lender credits.

For assets to count, they must have been seasoned for sixty days or be sourced. Cash deposits that cannot be sourced cannot be used as a borrower’s asset.

Notably, asset requirements will be defined in terms of PITI (Principal Interest Taxes and Insurance), which means you’ll need sufficient funds to cover a certain number of months’ worth of mortgage payments, including principal, interest, taxes, homeowners insurance, mortgage insurance, and HOA dues, if applicable.

Documents Needed For An FHA Loan

After completing a loan application, several supporting documents are required. The lender will need the following documents that include but are not limited to:

• Personal Identification (e.g., Driver’s License, State issued ID, Passport, etc.);
• Social Security Card;
• Recent 30-day paycheck stubs;
• Past two years W2s;
• Recent two months’ bank statements;
• Most recent retirement account statement;
• Last two years signed tax returns, if self-employed;
• Divorce Decree and Child Support Orders, if applicable.

Apply For An FHA Loan With Capital Home Mortgage Alabama

At Capital Home Mortgage Alabama, we recognize that securing a home loan can be stressful and our goal is to make it streamlined and simple.  To start your application, contact our Alabama Loan Officers at (205) 352-1030.