Mortgage Recap: FHA Qualifications in a Nutshell

By Daniel Duffield

While FHA loans have noticeably increased in popularity over the past few years, the Federal Housing Administration (FHA) does not actually originate mortgages or lend money; in fact, they simply insure these loans, providing a wide range of borrowers access to home mortgage loans with relative ease.

Basic Requirements of an FHA Loan

If you are considering an FHA loan, here is a concise summary of the basic requirements which borrowers must satisfy:

    Credit Score > 530 (580)
    DTI < 31%
    Property must be the borrower’s primary residence.
    2 years of stable employment and income

Credit: In order to satisfy basic FHA credit requirements, borrowers must have a credit score of at least 530; however, in order to qualify for a 3.5% down payment, borrowers must have a score of 580 minimum. These requirements may vary from lender to lender, and a credit score of 640 is generally preferred.

Debt-to-Income: In order to secure an FHA loan, borrowers must have a debt-to-income ratio (DTI) of 31% or less, meaning that your total monthly payments for recurring debt must comprise less than 31% of your gross monthly income.

Residence: You must live in the home as your primary residence. Initially created to make home loans more accessible for low to moderate income borrowers, FHA mortgages are almost exclusively home purchase mortgages, rather than second mortgages or bridge loans or other loan types.

Income and Employment: During the application process, borrowers will need to report at least two years of steady employment and income in order to prove their reliability in repaying the loan. Although exceptions can be made, having a stable financial standing for two years will guarantee the best rates.

Additional Considerations for obtaining an FHA Loan:

Loan Limits: FHA mortgage loan limits differ from county to county depending on home values. If you are securing an FHA loan, be sure to consider your county’s loan limits; because FHA loan are geared toward lower income borrowers, borrowers will not likely be able to take out an FHA loan to buy a mansion.

Bankruptcy: Borrowers who have undergone a chapter 7 bankruptcy must wait a minimum of two years before applying for an FHA loan. Borrowers with a chapter 13 bankruptcy must wait a minimum of 12 months, making on time payments to their bankruptcy, before seeking approval from an FHA lender. In either case, borrowers should wait to re-establish credit in order to secure the best interest rates.

Foreclosure and Short Sale: As with bankruptcy, obtaining an FHA loan after a foreclosure or short sale is not impossible, though it may take some time. Borrowers who have undergone a foreclosure must wait a minimum of 3 years and present extenuating circumstances to the event in order to be approved for an FHA loan. Borrowers who have dealt with a short sale must wait three years to qualify, although this may be reduced with extenuating circumstances.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

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