How to Qualify for FHA Loan

by wildcherry on Wednesday, October 28th, 2009 | Life, Tips

To qualify for FHA loans you must be a first time home buyer; however the FHASecure program is available for homeowners with adjustable-rate mortgages who are at risk of foreclosure. All borrowers, whether they’re receiving a new loan or refinancing an old one, must meet the following basic FHA loan criteria:

* Have a valid Social Security Number (SSN)

* Be a legal resident of the United States

* Be of legal age to sign a mortgage in your state.

Some of the credit guidelines from the FHA are listed below.

Most FHA lenders want to see FICO scores of 620 or higher to qualify you. Check your score with FICO® Quarterly Monitoring
Even if you do not have a credit score, you can still qualify if you have other credit such as phone, utility or cable bills and can produce credit history with cancelled checks or printouts
In Chapter 7 bankruptcy, you can still qualify for a FHA mortgage 2 years after your discharge, and in Chapter 13 bankruptcy you can qualify if you are making payments on time and with the trustee’s permission
You can qualify to get a FHA loan 3 years after a foreclosure.

FHA Underwriting Standards

As with all lenders, you must meet additional requirements regarding your credit history, income, and debt-to-income ratio. The FHA will also consider your down payment plus additional cash for closing.

Credit History

Unlike most other lenders, the FHA doesn’t require you to have a traditional credit history in order to consider your reliability. Instead, lenders can build a credit history based on utility payments, rental payments, auto insurance payments, and other payments that don’t appear in credit files. They will also consider whether you’ve had a bankruptcy in the last two years. You should have a good history of on-time payments in the last two years and be current on all payments. If you’re in default on any student loans, you will not qualify for an FHA loan.

Income and Ability to Pay

Regardless of the FHA loan limit for your area, the loan amount you qualify for depends on your income and ability to pay. Under FHA standards, you should spend no more than 31% of your monthly income on your mortgage, property tax, and insurance. In addition, you should spend no more than 43% of your income on total debt payments, including student loans, car loans, and credit card debt.

Down Payment and Cash on Hand

FHA loans require a minimum of 3% cash-on-hand for the down payment and closing costs. The following maximum loan-to-value ratios also apply to either the appraised value or sales price (whichever is lower):

Collateral

FHA underwriting standards determine the total loan you can receive. The home you use as collateral must be worth at least 3% more than the loan. A 20% down payment won’t increase the available loan funds, but it will enable you to buy a more expensive home. It might also make it easier to qualify for a conventional mortgage that doesn’t require FHA’s mortgage insurance premium.

FHA loan standards are much more generous than conventional loan standards, but you must still be able to meet their basic requirements and underwriting standards in order to qualify. Use the FHA’s loan estimate tool to determine how much home you can afford.

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