FHA-insured mortgage loans are a popular financing option among home buyers in New Jersey. They’re especially popular with first-time buyers, though they are not limited to this group. Here’s a quick look at the basic FHA loan requirements for New Jersey borrowers, updated for 2017.
FHA Loan Requirements in New Jersey
The Federal Housing Administration’s mortgage insurance program is managed by the Department of Housing and Urban Development (HUD). So it is HUD that establishes all of the guidelines and requirements for FHA loans issued to New Jersey borrowers.
Many of these guidelines can be found in HUD Handbook 4000.1, also known as the Single-Family Housing Policy Handbook. But that resource contains nearly 1,000 pages, and you’re a busy person. So we’ve pulled out a few of the most importantrequirements for an FHA loan in New Jersey.
Related: A forecast for the NJ housing market
A Minimum Down Payment of 3.5%
New Jersey home buyers who use an FHA loan to purchase a house must make a down payment of at least 3.5%. Specifically, that’s 3.5% of the purchase price or the appraised value, whichever is less. HUD refers to this as the minimum required investment, or MRI.
The good news is you can obtain down-payment funds from a third party, such as a family member or employer. FHA allows for “gift funds” from a variety of sources, including family members, charitable groups, employers, and even close friends with a “documented interest” in the borrower.
A Credit Score of 620 (for the MRI Mentioned Above)
Credit scores are another important requirement for FHA loans in New Jersey. In fact, these three-digit numbers are important for anyone trying to borrow money from a bank or other lender. They are computed from information found within your credit reports, which are basically a history of your borrowing activity.
According to current FHA guidelines, borrowers in New Jersey must have a minimum credit score to be eligible for the program. Often time’s lenders place limits or overlays on how low a credit score they will allow. Please check with your lender before applying. Borrowers who want to take advantage of the 3.5% down payment mentioned above should have a credit score of 620 or higher.
Home buyers can benefit from having good credit in several ways. A higher score can make it easier to qualify for mortgage financing, whether you’re using an FHA or a conventional loan. Good credit can also help you qualify for a better interest rate on mortgages, car loans, etc. But for an FHA loan in New Jersey, you should have a score of at least 620.
A Manageable Level of Debt
The amount of debt you currently have will also play a role, when you apply for an FHA loan. Banks and other lenders use the debt-to-income ratio, or DTI, to make sure that a borrower is not taking on too much debt with the addition of a mortgage.
Different home loan programs have different requirements, as far as debt goes. To qualify for an FHA loan in New Jersey, borrowers should ideally have a total debt-to-income ratio no higher than 43%. But there are exceptions to this rule, particularly for borrowers with “compensating factors” such as cash reserves, or a minimal increase in the housing payment. In some cases, the DTI can be as high as 56% for FHA loans.
FHA Loan Limits for New Jersey
The Federal Housing Administration sets limits for the maximum loan amount they are willing to insure. These are aptly referred to as FHA “loan limits.” These limits can vary from one county to the next, because they are based on median home prices (which also vary by location). Additionally, there are different limits for single-family and multi-family properties.
For a typical home buyer, it is the single-family loan limit that applies. And in New Jersey, these can range from $275,665 to $636,150. It’s important to understand that these limits can change from one year to the next, due to rising home values. So you always want to make sure you’re looking at the most current information available.
This is a basic overview of FHA loan requirements for New Jersey home buyers. Obviously, there is more to this program than what we’ve covered here. But if you can check all of the boxes listed above, you might be a good candidate!
Have questions? Our mortgage experts know this program inside and out. Please contact us today with any questions you have about getting an FHA loan in New Jersey, or if you’d like to receive a rate quote.