Around 88 percent of first-time home buyers use a real estate agent to help them find the best residence to fit their needs. The right real estate agents can answer questions like where are the best neighborhoods or what is a FHA loan? One of the best ways to narrow down the selection of homes for sale in your area is by getting pre-approved for an FHA loan.
Before getting approved for this type of loan, you will have to meet certain criteria. In some cases, these loans can be denied. Here are some of the most common causes of an FHA loan application being denied.
Not Having a Down Payment
The current guidelines in place for FHA loans stipulate that a borrower has to put at least three and a half percent of the total loan amount down. If you don’t have the money to pay this down payment, you will be unable to take advantage of this type of loan.
There are some VA and USDA loans that offer 100 percent financing. Learning about all of the lending options you have available is essential when trying to figure out which one is the right fit for your needs.
You Can’t Cover Closing Costs
The only upfront expense you will have on an FHA loan is the down payment. However, you will have to pay closing costs, which in some cases can be as much as a couple thousand dollars. While the FHA does allow sellers to pay up to six percent of closing costs, you will be responsible for the rest of this amount.
One of the first things an FHA lender will check when you apply for a loan is the balance in your bank account. If there is not enough in your account to cover both the down payment and the closing costs, you may be denied.
Problems With Debt to Income Ratio
One of the most important mortgage qualifications you have to meet is an acceptable debt-to-income ratio. In order to calculate this ratio, a lender will consider your gross monthly income and the debts you have to pay. If your debt-to-income ratio exceeds 43 percent, you will be unable to get approved for an FHA loan. Before going in to apply for this loan, you need to do all you can to pay down your debt so your DTI will be acceptable.
Recent Foreclosures and FHA Loan Denial
If you have been foreclosed on within in the last three years, you will probably be denied when applying for an FHA loan. The only way you can get approved with a foreclosure is if it has been over three years since this incident happened and you have reestablished good credit. Consulting with an FHA lending professional can help you figure out what to do to increase your chances of being approved.
Rushing through the FHA application process is a recipe for disaster. Working with the right lender is essential when attempting to get the funding you need for a home purchase.