FAQ On FHA Loan Requirements And Mortgage Guidelines

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FAQ On FHA Loan Requirements And Mortgage Guidelines

This Article On FAQ On FHA Loan Requirements And Mortgage Guidelines Was UPDATED On November 14th, 2018

By popular demand by our viewers on Gustan Cho Associates, this BLOG on FAQ On FHA Loan Requirements is being published.

  • This article on FAQ On FHA Loan Requirements is not just for first time home buyers but for borrowers in general
  • The mortgage industry has become very complex
  • There seems to be no STOP on mortgage regulations
  • Hopefully, with our new president, President Donald Trump, mortgage regulations will get simplified and easier for the general public to understand and become somewhat deregulated

We will cover common FAQ On FHA Loan Requirements by borrowers and those planning on purchasing a home including the following:

  • Credit
  • Importance of credit
  • What is FHA compared to other loan programs
  • What are lender overlays
  • What are the best loan programs for you
  • Qualification requirements for other loan programs

What Are FHA Loans?

One of the most FAQ On FHA Loan Requirements, especially for first time home buyers is What Are FHA Loans? FHA stands for Federal Housing Administration.

Here is the role and function of FHA:

  • FHA is not a lender but a government agency under the United Stated Department of Housing and Urban Development
  • The U.S. Congress and HUD created FHA to promote home ownership
  • Goal is to make home ownership affordable to the average hard working American family
  • The Federal Housing Administration was created in 1934
  • FHA Loans allows lenders to offer folks realize the dream of home ownership become a reality with the following minimum guidelines:
    • 3.5% down payment
    • less than perfect credit
    • credit scores as low as 580
    • outstanding collections and charge offs
    • gaps in employment
    • prior bankruptcy and foreclosure
    • higher debt to income ratio
  • The role of FHA is insure lenders against borrower default and foreclosure
  • Lenders need to follow FHA Guidelines in order for home loans to be insurable

Most people think that FHA is a government lender but that is not the case. Again, FHA is a government agency whose role is to insure lenders if borrowers default on their FHA Loans. Due to this government guarantee, lenders can offer home loans with little down payment and less than perfect credit.

FAQ On FHA Loan Requirements On Credit Scores

One of the FAQ On FHA Loan Requirements is what credit scores do you need to qualify for a FHA Loan.

Here are the Credit Score Requirements to qualify for FHA Loans:

  • To qualify for a FHA Loan with a 3.5% down payment, minimum credit score of 580 FICO is required
  • Borrowers with credit scores of under 580 FICO can qualify
  • However, they would need to put 10% down payment
  • Credit scores between 580 and 619 FICO Credit Scores, debt to income ratio cannot exceed 43% DTI  to get an approve/eligible per Automated Underwriting System
  • If credit scores are 620 FICO or higher, back end debt to income ratio can be as high as 56.9% DTI and front end can be as high as 46.9% DTI for an approve/eligible per AUS

FAQ On FHA Loan Requirements On Qualification Requirements

Another common FAQ On FHA Loan Requirements is how difficult is it to qualify for a FHA Loan. Many home buyers think that your need stellar credit and a large down payment to qualify for a FHA Loan. This is not the case. Here are the qualification requirements:

  • FHA Loans are for owner occupant properties ONLY. FHA Loans are not for second homes and investment homes
  • You can purchase a one to four unit residential property as well a FHA approved condominiums, town homes, and manufactured homes with a FHA Loan
  • FHA allows for non-occupant co-borrowers. Non-occupant co-borrowers needs to be a family member who is related to the borrower by blood, law, or marriage
  • Down payments can be gifted
  • FHA requires impound accounts which consists of homeowners insurance and property taxes as well as HOA dues if applicable. The lenders will make the property tax and homeowners insurance payments directly when it is due
  • You do not have to pay off outstanding collection accounts and charge offs to qualify for a FHA Loan
  • FHA does require a one time upfront mortgage insurance premium of 1.75% of the mortgage loan amount which can be rolled into the FHA Loan balance and an annual 0.65% FHA mortgage insurance premium
  • FHA offers 30 year fixed rate, 15 year fixed rate, and 5 year adjustable rate mortgages

FAQ On FHA Loan Requirements On Maximum Loan Limits

One of the biggest issues with going with FHA Loans versus Conventional Loans is Loan Limits.

  • The FHA Loan Limits for 2018 in most areas of the United States is capped at $294,515 for a one unit property
  • Conventional Loan Limits is capped at $453,100 for a single unit property
  • HUD realizes that there are certain counties in the United States where home prices are higher
  • HUD classifies these areas as high cost areas and has higher loan limits
  • FHA Loan Limits on high cost areas are capped at $679,500 on one unit properties

FAQ On FHA Loan Requirements On Condominiums

Condominium buyers can qualify for condominium mortgage with a FHA Loan. However, there are stipulations.

Here are the requirements on qualifying for a FHA Loan to purchase a condominium:

  • Besides the borrower meeting all of the FHA Guidelines, the condominium building needs to be FHA approved
  • Before entering into a purchase contract on a condominium, make sure that the condominium complex is HUD approved

Here is the HUD link on FHA approved condominiums:  https://entp.hud.gov/idapp/html/condlook.cfm

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