March 7, 2022
What does it take to qualify for an FHA mortgage? That’s among the most common questions asked about FHA home loans. What is the answer?
There are a variety of factors that go into your loan officer’s decision to approve or deny a home loan. Those factors include the number and amount of your monthly financial obligations, your FICO scores, how well you use the credit you have, and other variables.
What credit score do you need to qualify? On paper, FHA loan rules say those with FICO scores in the 580 or above range qualify for the lowest down payment possible for an FHA mortgage (3.5%). Lender standards may require a higher FICO score range.
Not all borrowers have the same kind of FICO scores. Some may have thin credit and only two FICO scores, others may have three. If you have two different scores the lender will use the lower number. If you have three scores that are the same, HUD 4000.1 says that is your credit score for the purposes of FHA loan approval.
What does it mean to have the lender review your monthly financial obligations? Basically that the lender wants to make sure you can realistically afford both your current debts as well as the new home loan.
Your debt ratio will be a key factor in the decision-making process–carry too much debt and your lender will have a hard time justifying loan approval. You’ll want your outgoing debt to take up less than 50% of your monthly income.
What if you have negative credit events in your history like a foreclosure? You may be required to wait a certain amount of time before you are allowed to apply for a home loan again.
This requirement is likely to vary from lender to lender depending on circumstances. It is best to ask each lender what the policies are for bankruptcy, foreclosure, short sales, or deed-in-lieu of foreclosure to learn how long you may need to wait.
Some borrowers want to know how many times a lender might check their credit during the home loan approval process.
The basic answer is that you should assume the lender will check your credit reports multiple times before closing day. Just because you have been pre-approved or pre-qualified for a loan amount does not mean you are safe from another credit check before your loan closes.
If you decide on a home and make an offer, you will be required to await the results of an FHA appraisal to establish the fair market value of the home. Some want to know if there is a way to move forward with the transaction if the home does not “pass” the appraisal.
The answer depends on circumstances, but in general, your appraisal may require repairs or corrections for certain issues–the process accommodates this in many ways. Some issues cannot be corrected but many can. Ask the lender if you are not sure what typically results in corrections versus basically declaring the home unfit for an FHA loan as-is.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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