December 13, 2021
Here’s a great example of a common question we are often asked: “How much is the minimum downpayment required for FHA loan? How do I qualify?”
The main issue with questions like these is that the question isn’t specific enough to answer to the reader’s satisfaction. Why? Because good credit scores aren’t enough, and lender FICO score requirements, in general, can vary between one financial institution and another.
Essentially, what a borrower needs to know when preparing to apply for an FHA mortgage includes (but is not limited to) a list of items.
For starters, you DO NOT have to be a first-time homebuyer to qualify for an FHA mortgage. You also don’t have to worry about income caps or household income restrictions for this type of home loan.
Some confuse details of the USDA home loan programs with FHA mortgages, but USDA requirements for income are not applicable with FHA mortgages.
That list will include FICO scores (many lenders look for scores starting at between 620 and 640), but also includes your most recent 12 months of payment history on all financial obligations, the nature and duration of your employment, and the amount of down payment you have (3.5% of the adjusted purchase price is the minimum required down payment).
There are also things that the lender needs to calculate that can affect whether or not you are qualified for an FHA home loan. One of those calculations is your debt-to-income ratio.
FHA home loans do not have a minimum income dollar amount specified, nor do they have a maximum dollar amount you can earn and still be qualified to borrow.
Instead, participating FHA lenders will review your verifiable income and compare that income to your financial obligations (including a projected monthly mortgage payment) to see what the percentage of total debt compared to the total income (calculated monthly) might be.
This ratio is very important for the purposes of approving or denying an FHA loan and it’s not something a borrower can get a specific decision for ahead of time.
One can speculate based on approximate numbers whether loan qualification is possible (borrowers with a debt to income ratio at or higher than 50% for example, may have a difficult time getting loan approval unless there are compensating factors).
Why?
Because FHA requirements state the lender must review the applicant’s income sources to verify that they are stable, reliable, and likely to continue.
This is a process that requires the lender to get pay stubs, tax information, and other data. Some kinds of income may not qualify to be included in the borrower’s debt-to-income calculation, and it’s the lender’s job to determine whether or not the borrower’s earnings meet FHA and lender standards.
This may sound complex, but it’s a necessary part of the process. Borrowers who aren’t sure if they financially qualify can call the FHA directly to request a referral to a local, HUD-approved housing counseling agency that can help with pre-purchase planning, budgeting, and credit issues.
Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we’ll get you there in 9 steps.
Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner’s Insurance
Step 9: What to Expect at Closing
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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