FHA Requirements

FHA Mortgage Loan Requirements

Before beginning the process of actually obtaining an FHA mortgage loan, it is important to look over what the FHA expects of its borrowers. Financial, credit, and employment requirements may seem daunting at first, but keep in mind that the FHA is usually much more flexible and accommodating than many private lending institutions.

If you don't meet one or two of the requirements, or if you meet them just barely, feel free to contact the FHA and see what they can do for you. Since every situation is different, you may be able to work out a solution so you can obtain an FHA mortgage.

Requirements:

Basics: To get an FHA mortgage loan, you need a valid social security number, must be a legal resident of the United States, and be of legal age to sign on a mortgage (this age varies from state to state).
Employment: There are no fixed employment requirements for an FHA mortgage loan.
Income: As with the above category, there are no minimum income requirements for an FHA loan. Rather, you must simply show that you have had continual income for the past two years. What constitutes income? Full-time wages from your employer, part-time pay, overtime pay, bonuses, seasonal pay, pension, child support paid to you, alimony paid to you, even rent paid by family members to you. Government-based sources of income can also be included, such as social security payments, unemployment compensation, military pay, and VA benefits. The FHA doesn’t have maximum income limits either, people with well-paying jobs or lots of other income can get FHA loans too.
Credit: One of the main advantages FHA loans have over conventional loans are the credit requirements. While conventional loans often demand that the borrower have a high credit score and no past bankruptcies or foreclosures, FHA is less strict.

You do not need perfect credit to qualify for an FHA loan as long as there is a good reason for any past credit problems.
If you lost your job, had a job transfer, suffered a serious illness or had to support someone suffering a serious illness, this may be reason enough to excuse your credit history.
There are two real credit requirements for an FHA mortgage loan: no bankruptcies in the past two years, and no foreclosures in the past three years.
Additionally, potential borrowers should make sure that any tax debts (also known as "tax liens") and other judgments have been paid or that a repayment plan has been set up to begin paying them.
It is recommended that you have no more than two "30 day late payments" in the last two years.
The best way to see if your credit is good enough to obtain an FHA loan is to get "pre-qualified." Most lenders offer some sort of pre-qualification service in which they will ask you about your credit history and determine whether or not you’ll be able to get the loan.
Some people who’d like to get an FHA loan do not have any credit history at all. This may be because they are too young to have any credit built up, prefer to pay their debts in cash or simply have never borrowed money. These people can get an FHA loan, but must prove their ability to make regular mortgage payments in other ways.

Debt to Income Ratio: This may sound like a complicated concept, but the "debt to income ratio" is easy to understand.

How much of what you make in a month goes towards debts that you owe? Hypothetically, if you make $1,000 a month, and you have to pay $250 a month in debt, then 25% percent of your income is going towards your debt: your dept ratio is 250 / 1000 = .25 = 25%.
FHA won’t let borrowers use more than 31% of their monthly income towards paying housing costs. Additionally, borrowers can’t use more than 43% toward other long-term debt (both of those figures apply to loans for existing dwellings, for new construction the figures are 33% and 45%, respectively).
With this in mind, remember that your income will determine how much your monthly mortgage payment to FHA will be – your monthly mortgage payment cannot exceed 31% of your monthly income.
In some cases, you can exceed this FHA debt to income ratio, but in order to do this you must have one of these:

Large cash reserves
Good credit history
The ability to make a large down payment
Mortgage terms that are less than the allowed maximums
A decrease in monthly housing expenses

Down payment:One of the main items people worry about when buying a home is the down payment (a percentage of the home’s total value to be paid in cash upon obtaining the mortgage loan). For many low- and moderate-income families, a large sum of cash is hard to come by. Fortunately, the FHA loan has one of the smallest down payment requirements.

The minimum down payment for an FHA loan is just 3.5% and will never exceed 5%. Borrowers usually use their own cash reserves to pay the down payment, but can also use cash gifts and private savings to pay it as well.
All loans and terms based upon borrower qualification. A full application must be submitted and evaluated to consider your unique credit situation.

Learn more about FHA Loans: