FAQ On FHA Loan Requirements

FAQ On FHA Loan Requirements and Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss the FAQ on FHA loan requirements and guidelines. 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 homebuyers but for borrowers in general. The mortgage industry has become very complex. There seems to be no STOP on mortgage regulations. Under former President Donald Trump’s tenure, mortgage regulations got simplified and easier for the general public to understand and become somewhat deregulated.

Importance Of Credit In Qualifying For A Mortgage

Importance Of Credit In Qualifying For A Mortgage

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 homebuyers is What are FHA loans? FHA stands for Federal Housing Administration. Here is the role and function of FHA:

  • HUD, the parent of FHA, is not a lender
  • FHA is a government agency under the United States Department of Housing and Urban Development
  • The U.S. Congress and HUD created FHA to promote homeownership
  • The goal is to make homeownership affordable to the average hard-working American family
  • The Federal Housing Administration was created in 1934

HUD Agency Mortgage Guidelines On FHA Loans

FHA Loans allows lenders to offer folks to realize the dream of homeownership 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 the 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

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 an FHA loan. Here are the Credit Score Requirements to qualify for FHA loans:

  • To qualify for an FHA loan with a 3.5% down payment, a minimum credit score of 580 FICO is required
  • Borrowers with credit scores of under 580 FICO can qualify
  • However, they would need to put a 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 the 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 an FHA loan. Many homebuyers think that your need stellar credit and a large down payment to qualify for an 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 an FHA approved condominiums, townhomes, and manufactured homes with an 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 to impound accounts which consist 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 an 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 2022 in most areas of the United States are capped at $420,680 for a one-unit property. Conventional Loan Limits are capped at $647,000 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. Conforming and FHA Loan Limits in high-cost areas are capped at $970,800 on one unit properties.

FAQ On FHA Loan Requirements On Condominiums

FAQ On FHA Loan Requirements On Condominiums

Condominium buyers can qualify for condominium mortgages with an FHA loan. However, there are stipulations. Here are the requirements for qualifying for an 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:  http://entp.hud.gov/idapp/html/condlook.cfm

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