FHA Loan Requirement And Guidelines On Home Purchase
This BLOG On FHA Loan Requirement And Guidelines On Home Purchase Was UPDATED And PUBLISHED On July 6th, 2020
FHA Loan Requirement:
FHA allows first time home buyers, as well as seasoned home buyers, can qualify for FHA Loans with the following:
- little or no credit
- low credit score
- little down payment
- prior bad credit
- higher debt to income ratios
- prior bankruptcy
- prior foreclosures
- prior deed in lieu of foreclosure
- prior short sale
- charge offs
- unpaid collection accounts
- short term on the job
- gaps in employment
In this article, we will discuss and cover FHA Loan Requirement And Guidelines On Home Purchase.
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 Administration 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 an FHA insured mortgage loan defaults and goes into foreclosure, FHA will partially insure the lender against loss
- In order for FHA to be able to insure lenders, the lender needs to follow FHA mortgage guidelines
- If the lender does not follow HUD Guidelines, the loan is not insureable by the Federal Housing Administration
- HUD created FHA in 1934
- Role of FHA is to make homeownership possible to tens of millions of Americans
- This is by making it possible for homebuyers to purchase homes with 3.5% down payment requirement and lax in credit and income qualification requirements
FHA offers only owner occupant properties.
Types Of FHA Loans
There are various FHA loan programs such as the following:
- Purchase loans
- FHA refinance loans
- Streamline Refinance
- 203k Loans
- Reverse Mortgages
- Cash-out refinance mortgages
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 unless lenders have overlays on credit scores.
- Borrowers with scores between 500 and 579 can qualify but need 10% down payment
- FHA minimum credit scores to qualify for a 3.5% down payment home loan is 580 credit scores
- FHA also allows non-occupant co-borrowers to be added on the loan if the main borrower does not income qualify on the home loan
- FHA also allows down payment to be gifted 100% by family members or close relative
FHA has a very aggressive debt to income ratio caps at 56.9% whereas the maximum debt to income ratio cap on a conventional loan is 50% DTI.
How Can I Qualify For A FHA Loan?
There are minimum FHA lending guidelines that must be met in order to qualify for an FHA insured mortgage loan.
Here are the basic qualification criteria to qualify for an FHA Loan:
- The property must be an owner-occupied unit
- Second-home financing and investment home loans cannot qualify for FHA loans
- 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 higher credit scores by most FHA lenders
- Condominiums need to have the condominium complex to be FHA approved condos
- A minimum down payment of 3.5% is required
- 100% of down payment and/or closing costs can be gifted by family members related to the main borrower by blood, marriage, law
- Escrow account for property taxes and insurance is mandatory
- Lenders will escrow property taxes and insurance and pay it to the appropriate parties when payment is due
Two years of employment history and two-year residential history is required.
Debt To Income Ratio Guidelines
Debt to income ratios:
- Front end debt to income ratios are capped at 46.9%
- back end debt to income ratios are capped at 56.9% to get Automated Underwriting System Approval
- 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 mortgages.
Bad Credit Mortgage Loans
Borrowers can qualify for FHA Home Loans with prior bad credit.
- However, to get an Automated Underwriting System Approval, timely payments in the past 12 months is required
- Outstanding collections and charged-off accounts do not have to be paid off
- There are mandatory waiting period after housing event and/or bankruptcy to qualify for government and conventional loans
Here are HUD’s waiting period requirements after housing event and/or bankruptcy:
- 2 year waiting period after Chapter 7 Bankruptcy discharged date
- Borrowers can qualify one year into a Chapter 13 Bankruptcy Repayment Plan with Trustee Approval
- There is no waiting period after Chapter 13 Bankruptcy discharged date
- Three year waiting period after foreclosure, deed in lieu, short sale
Homebuyers who need to get qualified for FHA Loans with a direct lender with no overlays on government and conventional loans, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at GCA Mortgage Group is are available 7 days a week, evenings, weekends, and holidays.