What are FHA Loan Requirements?
If you would like to buy a home, but you don’t have a big down payment saved up, don’t worry because an FHA loan allows you to purchase a home with a really low down payment.
The FHA home loan is one of the best home loans to get qualified for because it only requires 3.5% down and will allow credit scores as low as 580. Now don’t get confused, this loan is available for all types of borrowers not just individuals with low credit scores.
One of the many great things about this loan is that with an FHA loan you are able to keep your cash reserves because of the low down payment and in other cases you also don’t have to wait years to save up to purchase a home. If you don’t have a down payment then you can use gift funds from a family member or friend.
When comparing various loan types, requirements for down payment ranges from 0% to 20%.
- Conventional loans: 5% – 20% down
- FHA loans: 3.5% down
- USDA loans: 0% down (must meet income & property eligibility)
- VA loans: 0% down (must be a veteran)
Start your quote and see if you qualify for an FHA low down payment home loan!
What is a FHA Loan?
FHA stands for the Federal Housing Administration, an administrative body created in 1934 by Housing and Urban Development, the U.S. Department of Housing and Urban Development to extend housing ownership in America. The bureau ensures loans granted by private lenders and doesn’t offer mortgage loans directly.
What exactly does that mean? FHA insures your loan so if the mortgage goes into default then the bank servicing your loan will be paid back the money that was borrowed. The government is able to guarantee this by charging the borrower a mortgage insurance premium for the life of the loan.
An FHA loan is a great fit for someone who only wants to put down 3.5%, so if you have fair credit and high debt then no problem! Out of all the loan types FHA allows the highest debt to income ratios giving borrowers wiggle room to go a higher with their loan amount compared to other loan types.
FHA also works well for an individual that has student loans. Because of the higher debt to income ratios the student loans can be less of a burden when calculating the approved loan amount.
Another scenario is someone who has excellent credit, low income and low debt. This person may qualify for higher debt to income ratios because of their excellent credit and low debt.
FHA Loan Credit Score Requirements
Credit scores plays a big role in lending. Credit scores are used by lenders to determine what kind of borrower is applying for a mortgage.
For an FHA loan, a borrower will want to be at a minimum of 580 credit score. A lender will pull credit from all 3 bureaus; Transunion, Equifax and Experian. The middle of the 3 scores will be the score used for loan purposes.
Scores say a lot about an individual. Here are some things that lenders are looking at when they review your credit report:
- How many tradelines does the individual have?
- Are bills paid on time?
- Does the person manage their money well?
- Does the person spend more than they can afford?
- Is the person making an effort to increase their scores?
- Does the individual have collections?
There are adverse credit items that are ok, like medical bills. Speak with one of our specialists to review your credit. If your credit score is below 580, then I strongly advise that you develop your credit score before applying.
Fill out our short form to find out more about your credit and if you qualify for an FHA Loan.
FHA Loan Benefits
Low Down Payment
The most recognized benefit of the FHA Loan is the low down payment of 3.5% for qualified buyers. You can also receive gift funds or a grant if you don't have the down payment.
FHA Loan requirements cover the following: credit worthiness of applicant, debt that appears on credit report, income and 2 years history of employment.
Lenient Credit Scores
One of the greatest benefits is that you are not required to have perfect credit in order to qualify for a FHA loan. Only a minimum credit score of 580 or higher can be approved.
Loan limits vary per county and state. Check with our FHA loan specialists to see what the loan limits are in your area.
FHA Loan Guidelines
- 500-579 FICO score require 10% down
(can use gift funds)
- 580+ FICO score require 3.5% down
(can use gift funds)
- MIP (Mortgage Insurance) is needed.
- 43% debt-to-income ratio
(50% in some cases).
- FHA-approved appraiser must do
- Two years of employment history
- Non-occupying co-borrowers allowed
- At least eighteen years
of age is required
- Must own house as a primary residence
FHA Loan Qualifications and Loan Limits
The FHA Loan guaranteed by the FHA and funded by FHA-approved lenders. Through the FHA’s guarantee, home buyers that may not have qualified for a conventional mortgage have the opportunity to secure home financing through the FHA Loan.
In order to be eligible for the FHA Loan, prospective borrowers must meet the following requirements:
- Must be willing and able to repay the loan
- Must provide proof of reliable income, including two years of tax returns and W2s
- Must display a positive history of paying debt obligations
- Must be 3 years from bankruptcy discharge date
- Must have a monthly payment that is less than 31% of your monthly income
- Must have a debt-to-income (DTI) ratio not exceeding 50% of your income
- Must be a current U.S. citizen or permanent resident with a Green Card
- Must remain under the FHA loan limit for the county they are looking to purchase in
One of the main requirements for FHA is that the loan amount remain under the loan amount limit for the county in which the borrower is looking to purchase. Each county has it’s own loan amount limit which is why its best to speak to a FHA specialist, but in general the FHA’s nationwide estimated loan amount limit is around $314,827.
Getting Started with an FHA Loan is Easy
The FHA loan process is similar to other home loans.
- It begins with completing our simple 30 second short form above.
- Once you complete our form a FHA loan specialist will contact you to get some additional personal information.
- If you qualify then the FHA loan specialist will request a few documents to verify your income and then issue you a pre-approval letter.
Get started today! Simply fill out the short form, so you can get Pre-Approved and start your home search today!
Speak with a Home Loan Specialist Today
Representatives Specializing in FHA Loans