What Is A FHA Loan And What Are FHA Loan Requirement

The Department of Housing and Urban Development is the parent of the Federal Housing Administration.  The Federal Housing Admininstration is known as FHA.  FHA is not a mortgage company and has nothing to do with originating and funding residential mortgage loans.  FHA role is to insure mortgage loans that FHA approved private banks and mortgage lenders originate and fund.  If a FHA insured mortgage loan defaults and goes into foreclosure, FHA will insure the FHA approved mortgage lender against any loss up to 80% loan to value.  In order for FHA to be able to insure the FHA approved mortgage lender, the FHA approved mortgage lender needs to follow FHA mortgage lending guidelines in order for it to be insureable by the Federal Housing Adminstration.  FHA has been in existance since 1934 and have made homeownership possible to tens of millions of Americans due to the lenient 3.5% down payment requirement and lax in credit and income qualification requirements.  FHA offers only owner occupant properties.  There are various FHA loan programs such a FHA purchase loans, FHA refinance mortgage loans, FHA Streamline Refinance mortgage loans, FHA 203k Loans, FHA Reverse Mortgage loans, and FHA cash-out refinance mortgage loans.

What Is The Minimum Credit Score FHA Loan Requirement?

Minimum credit scores required for a 3.5% down payment home purchase FHA Loan is 580 FICO credit scores unless the mortgage lender has overlays on credit scores.

How Can I Qualify For A FHA Loan?

There are minimum FHA mortgage lending guidelines that must be met in order to qualify for a FHA insured mortgage loan.  Here are the basic qualification criteria to qualify for a FHA Loan:

  • Property must be an owner occupied unit.  Second home financing and investment home mortgage loans cannot qualify for a FHA insured mortgage loan.
  • FHA loans are available for 1-4 units houses including single family residence, town-homes, condominiums as well as manufactured homes.  Manufactured home financing requires a higher credit scores by most FHA lenders.  Condominium FHA Loans need to have the condominium complex to be FHA approved condos.
  • A minimum downpayment of 3.5% is required. The downpayment can be gifted from parents, children, siblings or relatives of the mortgage loan borrower.
  • Escrow account for property taxes and insurance is mandatory on all FHA insured mortgage loans. The mortgage lender will escrow your property taxes and insurance and pay it to the appropriate parties when payment is due.
  • A two years employment history is required and two year residential history is required.
  • Debt to income ratios:  Front end debt to income ratios are capped at 46.9% and back end debt to income ratios are capped at 56.9%.
  • Upfront mortgage insurance (UFMIP) of 1.75% and annual mortgage insurance of 0.45 to 0.85% is required on FHA Loan
  • FHA offers both adjustable rate mortgages and fixed rate FHA mortgage loans.

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