In 2018, FHA loans made up 12.1 percent of all mortgage originations, according to USA Today. Now, it seems that the FHA may be poised to snare an even larger share of the pie in the future. The U.S. Department of Housing and Urban Development (HUD) has cleared the way for people in the Deferred Action for Childhood Arrivals (DACA) program to use these loans with a statement that removes any doubt about their FHA eligibility. This gives DACA recipients, who are often called Dreamers, access to a new tool when they’re pursuing homeownership.
HUD Expands FHA Eligibility to DACA Recipients
On January 20, 2021, in one of the final acts of the outgoing Trump administration, a noticeopens PDF file was posted on the HUD website that made it clear that being a Dreamer should not automatically make someone ineligible for an FHA loan. Hopefully, this distinct answer will clear up any lingering confusion so that homebuyers can take advantage of these useful loans.
A History of Confusion
When it comes to the FHA eligibility of Dreamers, there’s been a history of confusion. As HousingWire explains, a passage in the FHA Handbook bars the participation of noncitizens without lawful residency. However, it was written before the passage of DACA, and the FHA was backing some DACA mortgages. Then, HUD declared that the FHA would no longer back DACA mortgages in 2019. However, when he was pressed on the matter in 2020, Secretary Ben Carson denied that any changes had been made and agreed to an investigation. Eventually, the notice confirming the eligibility of Dreamers was posted in January of 2021.
Eligibility for DACA Recipients
If you’re a DACA recipient, how do you know if you’re eligible for an FHA loan? According to My Mortgage Insider:
- Borrowers must have a valid Social Security Number unless they are employed by a foreign embassy, the World Bank, or an equivalent employer identified by HUD.
- Borrowers must be eligible to work and able to provide the Employment Authorization Document issued by the U.S. Citizenship and Immigration Services.
- Borrowers must meet the requirements, terms, and conditions set for U.S. citizens.
Qualifying for an FHA Loan
Backed by the FHA and issued by private lenders, FHA loans are designed to make homeownership more achievable for people with limited savings or lower credit scores. The requirements for qualifying for these loans reflect that reality. While lenders may add their own stipulations to the list, NerdWallet provides a list of the FHA’s minimum requirements:
- Credit Score: Borrowers need a credit score of at least 500. However, they’ll need a score of 580 if they want the privilege of making the minimum down payment.
- Down Payment: Borrowers with a credit score of 580 or higher can make a down payment of just 3.5 percent. However, borrowers with a credit score below that mark will require a down payment of at least 10 percent.
- Debt-to-Income Ratio: Borrowers must have a DTI of less than 50 percent.
- Property Approval: The property also has to meet certain requirements. For starters, borrowers must intend to use it as their primary residence. In addition, it must meet the FHA’s minimum property standards, which are designed to ensure that it is safe and livable. Finally, it must be appraised by an FHA-approved appraiser.
Is an FHA Loan a Good Choice?
Is an FHA loan a good choice? The answer depends on your situation. Experian suggests that an FHA loan might be a smart pick if you don’t have much saved for a down payment, your credit is in poor shape, or you are only being offered relatively high interest rates for conventional loans. However, these loans do come with strict appraisal standards that can make finding a property tough. They also have mandatory mortgage insurance. This insurance extends throughout the life of the loan and adds to its overall cost.
Is an FHA loan the right choice for you? To find out, talk to the experts at PrimeLending Denver. We offer personal service, user-friendly guidance, and a wide range of loan products, and we’re happy to work with you to help you find a loan product that matches your specific needs. Contact us today to get started.