FHA Loan: Qualifications, Fees, and Limits Explained

FHA loans seem like a great investment, but what do they cost you? The good news is that these loans are more affordable than conventional loans. They are also easier to qualify for, have lower closing costs and large limits. These elements make FHA loans ideal for many people, especially those who want a simple loan without a lot of cost and hassle but that don’t have the ideal credit history to qualify.

Loan Qualifications for FHA Loans

Qualifying for FHA loans is easier to do than other loans, but there are still minimums that have to be met. Here’s a look at some of those qualifications:

• Have two years of steady employment. It is best that this time is spent with the same employer.
• Have enough income to afford the monthly payment, which should be the same income or more than you’ve had over the last two years.
• The new mortgage payment should be less than 30 percent of your gross income.
• If you’ve filed bankruptcy, it must have been discharged at least two years ago. If you have foreclosure history, it must be at least three years old.
• Your credit report shouldn’t be awful, typically you shouldn’t have more than two 30 day late problems in the last two years.

Other qualifications may be in place but your FHA loan specialist can help you qualify for them.

FHA Loan Fees Explained

Even though FHA loans are more affordable, there still are closing costs that must be paid. Closing costs often include the following:

• Loan Origination: Usually a maximum of 1 percent of the loan’s amount
• Loan Discount: Points or discount points is a onetime charge you’ll need to pay, but the fee varies. This is used to lock in your rate or to lower your rate.
• Appraisal Fees: Range from $300 to $500, or more depending on location
• Lender’s Inspection fees: Covers the cost of inspections for newly constructed homes.
• Credit Report Fees: Usually under $60; used to obtain your credit report.
• Mortgage Insurance Application Fee: A low fee that covers the processing of your application only
• Assumption Fee: Only applied when you take over a seller’s existing mortgage
• Mortgage Broker Fees: Fees paid to brokers.
• Wire Fee: A fee for wiring funds to close the loan
• Underwriting fee: charged by underwriters on the loan to file the loan and paperwork

Fees are specific to each lender, too, so you’ll find some changes in these fees. Your FHA loan specialist can give you a better determination of fees.

FHA Loan Limits

There are limits on the amount of a loan you can obtain through the FHA. Currently, these limits are changing. Lending limits vary from one state and county to the next. For example, the most you can finance through an FHA loan in California are the highest at $729,750 if you live in Los Angeles or similar areas. In Ohio’s Fairfield county, the most you can finance is $341,250.

These numbers are the current, through December 31st, 2008. These numbers are likely to change in the following years. Again, talk to your FHA loan specialists to learn about the current options you have.