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FHA Loan Requirements

October 02, 2020

Important FHA Guidelines for Borrowers

The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created.

  • FICO® score at least 580 = 3.5% down payment.
  • FICO® score between 500 and 579 = 10% down payment.
  • MIP (Mortgage Insurance Premium ) is required.
  • Debt-to-Income Ratio < 43%.
  • The home must be the borrower's primary residence.
  • Borrower must have steady income and proof of employment.

An FHA Loan is a mortgage that's insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers.

FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.

FHA Loan applicants must have a minimum FICO® score of 580 to qualify for the low down payment advantage which is currently at 3.5%. If your credit score is below 580, the down payment requirement is 10%. You can see why it's important that your credit history is in good standing.

Keep in mind that FHA credit requirements cover more than just your FICO® score; they also determine eligibility based on a borrower’s payment history, bankruptcies, foreclosures, and extenuating circumstances that keep applicants from making timely payments.

The FICO® score is a number that represents a potential borrower's creditworthiness. FICO® is a data analytics company which uses consumer credit files collected from different credit bureaus to compute their scores.

Your FICO® score is reviewed by lenders and is used to determine how likely you are to make timely payments on your mortgage. The higher the score, the better your chances are of getting a lower interest rate on your mortgage.

our FHA lender will review your past credit performance while underwriting your loan. A good track record of timely payments will likely make you eligible for an FHA loan. The following list includes items that can negatively affect your loan eligibility:

  • No Credit History
    If you don't have an established credit history or don't use traditional credit, your lender must obtain a non-traditional merged credit report or develop a credit history from other means.
  • Bankruptcy
    Bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage. For Chapter 7 bankruptcy, at least two years must have elapsed and the borrower has either re-established good credit or chosen not to incur new credit obligations.
  • Late Payments
    It's best to turn in your FHA loan application when you have a solid 12 months of on-time payments for all financial obligations.
  • Foreclosure
    Past foreclosures are not necessarily a roadblock to a new FHA home loan, but it depends on the circumstances.
  • Collections, Judgements, and Federal Debt
    In general, FHA loan rules require the lender to determine that judgments are resolved or paid off prior to or at closing.
  • Easier to Qualify
    FHA provides mortgage programs with lower requirements. This makes it easier for most borrowers to qualify, even those with questionable credit history and low credit scores.
  • Competitive Interest Rates
    FHA loans offer low interest rates to help homeowners afford their monthly housing payments. This is a great benefit when compared to the negative features of subprime mortgages.
  • Bankruptcy / Foreclosure
    Having a bankruptcy or foreclosure in the past few years doesn't mean you can't qualify for an FHA loan. Re-establishing good credit and a solid payment history can help satisfy FHA requirements.
  • Determining Credit History
    There are many ways a lender can assess your credit history, and it includes more than just looking at your credit card activity. Any type of payment such as utility bills, rents, student loans, etc. should all reflect a general pattern of reliability.

    After learning about some features of an FHA mortgage, undecided borrowers often choose FHA loans over conventional loans because of lower down payment requirements, better interest rate offerings, and unique refinance opportunities.

  • Down Payment Requirements
    While FHA loans can be had with as little as 3.5% down, conventional loans usually require a 20% down payment. These funds must come exclusively from FHA-approved sources, such as your savings account, money saved at home, investments you have cashed in, gift funds, etc.
  • Mortgage Insurance
    Conventional loans usually require the borrower to carry Private Mortgage Insurance if borrowers don't provide a minimum 20% down payment. FHA mortgages are different and require the payment of an Up Front Mortgage Insurance Premium and an annual Mortgage Insurance Premium (MIP).

www.fha.com

 

 

 


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