October 24, 2017
How do you qualify for an FHA loan? Many want to know what it takes to get approved for an FHA mortgage, and you may be surprised to find out that FHA mortgage loans have more forgiving minimum requirements than other types of home loans.
Lender standards will apply above and beyond FHA minimums depending on the financial institution and other factors, but in general FHA mortgages are designed to be more affordable and more forgiving where credit qualifications are concerned.
Qualifying For An FHA Mortgage
To begin, only owner-occupiers are allowed to get FHA loans. You can’t buy an investment property with an FHA mortgage unless you are a non-profit or a government agency (generally speaking). If you intend to purchase property you will live in as your home and main address, you may be approved for an FHA mortgage.
Non-Occupying Co-Borrowers Are Allowed
FHA loans do permit a non-occupying co-borrower to be included on the mortgage, but at least one person obligated on the loan must move into the property as her or his main address, usually within two months of the loan closing date.
Credit Qualifications For FHA Mortgages
FHA loans require the borrower to have a minimum FICO score and minimum employment history. FHA loan rules specify a minimum FICO score of 580 or higher for the lowest down payment (also known as “maximum financing”).
Those with FICO scores of 500 or higher are technically eligible for FHA loans according to FHA standards, but lender requirements may include high FICO scores-you will need to see how much higher the lender’s standards are from the FHA minimums to learn what you are eligible for.
The lender is required to verify your most recent two years of employment. These two years do not technically have to be with the same company or in the same position. Again, lender standards may also apply, so you will need to see what the participating lender’s standards are for job history above FHA minimums.
Your credit scores are only part of the picture-the lender will need to know the amount of debt you have compared to the amount of income you bring in each month. Your debt-to-income ratio will play an important part in getting your loan approved, so it’s good to pay attention to that ratio as early as possible.
FHA Loan Requirements For The Property
In addition to FHA standards for the borrower, the home you are trying to buy must also meet FHA minimum standards. Your loan can be approved for homes that meet these standards plus any state/local requirements including building code, health authority standards, etc. The way the property is reviewed to determine if it meets such standards is known as the appraisal.
Appraisals include a look at the basic features of the property including wells where applicable, and proximity to high noise environments or other factors that may affect the value of the home. Is the property located in a known flood zone or natural disaster area? These issues are also part of the review of the home.
Once the appraisal process is finished, borrowers will also want to pay for the optional (but extremely important) home inspection. An appraisal is NOT intended to tell the buyer the home is “safe to buy”, it is only a tool for the lender to determine value and to make sure the home meets the bare minimum requirements.
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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