Getting an FHA loan in New Jersey can be a way for individuals and families to purchase their first home and break the cycle of renting. If you are looking for an affordable financing option, then an FHA mortgage loan might be the right choice versus conventional financing. What are the important points you need to know about the FHA mortgage loan program?
First, it is important to note that qualifying for an FHA loan is based on your income, credit score, and down payment. The Federal Housing Administration’s mortgage insurance program is managed by the Department of Housing and Urban Development (HUD), who sets all the guidelines and requirements for the lenders who handle the program in New Jersey.
Your down payment for your FHA loan in New Jersey has to be a minimum of 3.5% of the purchase price or the appraised value of the property, whichever is lower. That means you have the opportunity to own a home without having to save a full 20% down payment, which can be cost prohibitive for some borrowers. Plus, your down payment funds can be gifted by a third party, such as family members or even an employer. These gift funds can come from a variety of sources, but you need to show that the individual giving the funds has a documented interest in you as the borrower.
With the smaller down payment, you will have a PMI (Private Mortgage Insurance), which will remain in effect until your mortgage amount is less than 80% of your home’s value.
Your Less Than Perfect Credit Score
One of the benefits of using the FHA mortgage loan program in New Jersey is that you can still get approved for financing, even with less than perfect credit. Since your credit score is computed from the three different credit reporting agencies, it is important to check with all of them to make sure there are no errors on the credit report. Once the lender knows what your credit score is, then they will be able to determine whether you qualify for an FHA loan in New Jersey.
As a borrower, you must have a minimum score to determine whether you are eligible for the program. Lenders may place limits or overlays on how low a credit score that their underwriters will allow. Therefore, it is important to check with your lender to determine how low a credit score they are willing to accept. In order to take advantage of the low 3.5% down payment, you will need to have a minimum credit score of 580 in New Jersey. The better your credit score, the more beneficial it will be for you in terms of interest rates. With historically low interest rates that are available now, a higher credit score can translate into significant savings.
If you have less than perfect credit, it can be beneficial to go over those areas with your lender, because the FHA loan program in New Jersey does have special requirements for those borrowers who may have a bankruptcy or foreclosure on their credit report.
Your Debt to Income Ratio
In addition to having your down payment and a solid credit score, you will need to make sure that your debt-to-income ratio (DTI) is reasonable. Your lender will tell you what level of DTI they are willing to accept, but typically, your DTI can be no higher than 43%. It is important to pay down debt prior to applying for your FHA mortgage loan, which will benefit your DTI.
As part of the loan process, you must also provide proof of income, typically for at least two years. You can provide tax returns, pay stubs, and W-2s.
Loan Limits Within New Jersey
The FHA has specific loan limits, which outline the maximum amount of the loan you can receive, based on your state and county. These limits will apply to the single-family homes and in New Jersey, that range is between $275,665 to $636,150, depending on your county. These limits can change from year to year, in part due to increasing home values. Working with our team, we can help you determine if you qualify for FHA financing and answer any questions that you may have.