FHA Home Loan Requirements: How Can I Qualify For An FHA Loan

This Article Is About FHA Home Loan Requirements: How Can I Qualify For An FHA Loan

When we talk about FHA home loan requirements, we are talking about the minimum agency HUD mortgage guidelines. HUD is the parent of the Federal Housing Administration (FHA). HUD and FHA do not have anything to do with originating, processing, underwriting, or funding FHA loans. HUD sets the rules and guidelines on how private lenders need to follow its guidelines if they want HUD to insure the lender in the event borrowers default on their FHA loans. HUD will partially guarantee and insure lenders who have borrowers default on their FHA loans. Private mortgage companies originate, process, underwrite, and fund FHA loans. The role of HUD is to promote homeownership to hard-working Americans by insuring private lenders with government-backed mortgage insurance on FHA loans in the event borrowers default and/or foreclose.

Who Originates, Processes, Underwrites, Funds, Services FHA Loans

HUD and FHA does not originate, process, underwrite, fund, or services FHA loans

HUD and FHA does not originate, process, underwrite, fund, or services FHA loans. Banks and private mortgage companies that are HUD-approved originate and fund FHA loans. HUD, the parent of FHA, is a federally backed mortgage insurer and insures FHA loans lenders originated and funded in the event the borrower defaults. HUD will partially guarantee the lender on the loss from the defaulted loan. Due to the government guarantee, lenders can offer FHA loans at low down payment to first-time homebuyers, borrowers with less than perfect credit and lower credit scores.

In order for HUD to insure lenders, mortgage lenders need to make sure borrowers meet every aspect of HUD agency mortgage guidelines. Due to the government guarantee, HUD-approved lenders aggressively offer FHA loans with 3.5% down payment with low credit score requirements at competitive rates. FHA loans are the most popular loan program for first-time homebuyers, borrowers with less than perfect credit, homebuyers with lower credit scores, and borrowers with high debt to income ratios. HUD has the most lenient mortgage guidelines for borrowers with prior bad credit and outstanding collections and/or charged-off accounts. Homebuyers with credit scores down to a 500 FICO are eligible to qualify for an FHA loan.

The Role And Mission Of The Housing And Urban Development And The Federal Housing Administration

The role of HUD, the parent of FHA, is to promote homeownership by promoting banks and mortgage companies by offering government-backed mortgage insurance in the event the borrower defaults on FHA loans. Lenders need to follow the HUD 4000.1 FHA Handbook, which is a 900 plus page list of agency guidelines by HUD. Mortgage lenders must meet the minimum agency HUD guidelines. However, lenders can have higher lending standards and requirements that surpass the minimum agency HUD guidelines which are referred to as lender overlays. The Federal Housing Administration, also known as FHA, insures lenders if borrowers default and foreclose on their FHA Loans.

HUD Is The Parent Of FHA And Insures Mortgage Companies That Follow FHA Home Requirements And Guidelines

FHA is a government agency under the U.S. Housing and Urban Development (HUD).  HUD and FHA are not lenders. HUD’s role is to insure home loans that meet HUD Guidelines to banks and lenders that originate, fund, and service home loans. These loans need to meet all of the FHA Home Loan Requirements in the event the homeowner with FHA loan defaults on their loans and the lender loses money. Due to the government guarantee, most lenders aggressively want to lend to homeowners who need FHA Loans. This is because in the event that the loan defaults, it is insured, thus, minimizing the risk to the lender. In this article, we will discuss and cover FHA Home Loan Requirements And Guidelines and the mechanics of the mortgage process on FHA loans. We will explain the difference between the agency HUD guidelines and the lender overlays. It is very important for borrowers to understand the minimum agency HUD mortgage guidelines. If you meet the agency guidelines but get denied from a lender due to their lender overlays, you can qualify for an FHA loan with a different lender that has no lender overlays. Gustan Cho Associates is one of the very few mortgage companies licensed in multiple states with no lender overlays on FHA loans. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays.

The  Importance Of Understanding The Minimum FHA Home Loan Requirements

It is very important to understand where you stand by fully understanding the minimum FHA home loan requirements and the function of HUD and FHA. FHA loans is the most popular loan program for first-time homebuyers, homebuyers with a recent bankruptcy or are under a Chapter13 Bankruptcy repayment plan, borrowers with less than perfect credit, those with higher debt to income ratios, and borrowers with credit scores down to 500 FICO. Many borrowers of FHA loans get conflicting reports on FHA home loan requirements from multiple lenders. Mortgage companies do not have a uniform lending standard on FHA loans. Every lender can have different FHA home loan requirements because they are allowed to have lender overlays on FHA loans. There are mortgage companies like Gustan Cho Associates with zero lender overlays on FHA loans.

Understanding Why FHA Home Requirements Is Different Among Lenders

Why FHA Home Requirements Is Different Among Lenders

The Federal Housing Administration is a governmental agency that insures mortgage loans to mortgage lenders against default. The Federal Housing Administration has its own rules and requirements that lenders need to adhere to in order to be insured by HUD. The Federal Housing Administration has its minimum guidelines. The mortgage lender can set overlays that are more strict than the minimum FHA home loan requirements. An FHA-insured loan is a great option for homebuyers who do not meet the tougher conventional mortgage loan underwriting guidelines. It is a great loan program for those who have had recent bad credit. It is a great program for first-time homebuyers as well. As long as borrowers meet the minimum FHA home loan requirements, they will get approved for an FHA loan. The key is which lender will offer them a loan with no lender overlays on FHA loans. We will cover and discuss how to qualify for an FHA loan for first-time homebuyers, borrowers with prior bad credit, and borrowers with credit scores down to 500 FICO.

How Can I Qualify For An FHA Loan?

What are the FHA home loan requirements to get an FHA loan? Borrowers need to consult with the lender and be able to have a 3.5% down payment. The down payment needs to be documented as of where it was derived. Gifts from family are allowed. The borrower will qualify for a 96.5% FHA home loan plus closing costs. Closing costs can be paid by the borrower. Or the seller can contribute up to 6% of the purchase price to help the borrower pay closing costs. The lender can assist with the closing costs with a lender credit in lieu of a higher interest rate. The property the borrower will qualify for is a one to four-unit residential owner-occupied property. By owner-occupied, the home needs to be the borrower’s principal residence. Cannot be a rental home or investment home.

Who Is Eligible To Qualify For An FHA Loan?

The FHA home loan requirements are the following:
  • Borrowers must have a valid social security number
  • Be a lawful resident of the United States
  • Show two-year residential history
  • Be of legal age
  • Have a 580 credit score to qualify for a 3.5% down payment home purchase FHA loan
  • The maximum front-end debt to income ratio cannot exceed 46.9% and back-end DTI cannot exceed 56.9% to get an approve/eligible per AUS
  • Outstanding collections and charged-off accounts do not have to be paid
  • The down payment and closing costs can be gifted
  • Non-occupant co-borrowers that are related to the main borrower by blood, marriage, law are allowed on a 3.5% down payment FHA loan
  • Non-occupant co-borrowers not related to the main borrower by blood, marriage, law are allowed but need a 25% down payment
  • Be employed for at least two years
  • Show two years of employment history
  • Show that they have consistent document income
  • Provide promising future employment with a consistent income to be able to pay for their new FHA Loan
  • Meet minimum credit and debt to income ratio requirements
  • The borrower needs to apply for a mortgage application as part of the FHA loan requirement

Need to state all income, asset, debt, and credit information.

Documents Required To Start The Mortgage Process On FHA Loans

FHA loan requirement is the borrower must submit the following docs:

  • two years tax returns
  • two year W2s
  • recent bank statements
  • other credit information like bankruptcy papers, divorce decree, child support, etc.

FHA Home Loan Requirements After Chapter 7 Bankruptcy

Homebuyers can qualify for an FHA loan two years after the Chapter 7 Bankruptcy discharge date

Homebuyers can qualify for an FHA loan two years after the Chapter 7 Bankruptcy discharge date. Lenders expect rebuilt and re-established credit after the discharge date. No late payments after the discharged date of Chapter 7 Bankruptcy. The team at Gustan Cho Associates has helped countless borrowers get their credit scores to over 700 FICO after the Chapter 7 Bankruptcy discharge date.

FHA Home Loan Requirements During Chapter 13 Bankruptcy Repayment Plan

Borrowers can qualify for FHA Loans during a Chapter 13 Bankruptcy Repayment period. Need bankruptcy trustee approval to sign off on the home purchase and mortgage loan. Needs to be a manual underwrite. There is no waiting period after a discharged date of a Chapter 13 Bankruptcy to qualify for FHA Loans. If the Chapter 13 Bankruptcy has not been seasoned for two years, it needs to be a manual underwrite. Manual underwriting guidelines apply.

Qualifying For An FHA Loan After Foreclosure, Deed In Lieu Of Foreclosure, Short-Sale

If the borrower had a home foreclosure, deed in lieu of foreclosure, short-sale, there is a three-year waiting period from the recorded date of the foreclosure and/or deed in lieu of foreclosure or the date of the sheriff’s sale. The waiting period start date is the date the deed of the home was transferred out of the homeowners’ name.

FHA Home Loan Requirements With Bad Credit

Homebuyers can qualify for FHA Loans with bad credit, prior bankruptcy, prior foreclosure, prior deed in lieu of foreclosure, prior short sale, outstanding collections, outstanding charge off accounts.

Minimum Credit Scores FHA Home Loan Requirements

FHA home loan requirements on credit scores are quite lenient.  Most lenders have overlays when it comes to credit scores. Most lenders require a minimum of a 620 credit score. The Team at Gustan Cho Associates are loan officers who are experts in originating and funding FHA Loans with no Overlays. To qualify for a 3.5% down payment loan FHA Loans, credit scores need to be at least 580. However, borrowers with a credit score are between 500 and 580 can qualify for FHA Loans with automated underwriting system approval. This holds true as long as they have a 10% down payment. Gustan Cho Associates will only go by AUS FINDINGS and has no Lender Overlays.

FHA Home Loan Requirements For Credit Scores Down To 500 FICO

If your credit score is under 580 and down to a 500 FICO, HUD requires homebuyers to put a 10% down payment versus a 3.5% down payment. Borrowers who can only afford to put a 3.5% down payment on a new home putchase, the team at Gustan Cho Associates will help you with boosting your credit scores to 580 FICO. We are experts in helping borrowers increase their credit scores with several quick fixes. Our team of licensed and/or support personnel can help you repair your credit and improve your scores so you qualify for a 3.5% down payment FHA-insured mortgage loan.

Homebuyers who need a loan officer who specializes in originating FHA loans with no lender overlays or have questions on FHA home loan requirements, please contact us at Gustan Cho Associates at 262-716-8151 or email us at [email protected] Text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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