What are the FHA Loan Requirements?

What are the FHA Loan Requirements?

2 Answers

With any loan there are 3 core factors to the loan requirements. They are credit history, capacity (debt to income), and cash (for closing or reserves). In addition, there is the character of the loan itself (owner occupied vs. investment, etc.)

FHA is typically owner-occupied only.

In regards to credit, while FHA doesn't technically have a minimum credit score. The lender's themselves have applied overlays requiring scores of at least 580 or 620. FHA's guidelines typically look for a clean credit history in the past 12-24 months that shows a willingness to meet your obligations. Beyond that, old collections and late payments are generally overlooked, but you may need to explain extenuating circumstances that led to those old problems.

When it comes to capacity, also known as debt to income ratios. FHA's general guidelines are that you're allowed to spend 31% of your income on your housing, and 43% on your total debt including housing. However, with good credit and other compensating factors, these ratios can often be exceeded. It all depends on the scenario.

Lastly, cash. FHA requires a minimum of a 3.5% cash down payment. This money must come from acceptable sources, which include your own savings in a bank account, or gift funds from a family member. Cash outside of a bank account is frowned upon and difficult to work with. Gifts from a party to the transaction (seller, realtor, etc.) are strictly forbidden.

For a standard FHA purchase on a single family residence, the requirements are 3.5% down and a Fico of at least 580 (although many Banks are not lending to people below a 620 Fico). If this is for a Condo, you will have to make sure that the property is on the HUD's Condo Approved website https://entp.hud.gov/idapp/html/condlook.cfm. If it is not, then you will have to submit a new approval that can take up to 30 days to be reviewed and approved.

Other requirements are Mortgage Insurance. Starting April 1st the Mortgage Insurance Premium is going up to 2.15% with the monthly MI remaining at .55%.

The Borrower must be able to show that they have assets to close, and the LO must check the Borrower's ratios and make sure that they do not exceed 50%. Our company's standards are ratios between 46%-50% must have compensating factors, such as 3 months reserves, etc...

Hope this helps!