FHA Loan Requirements
Borrowers interested in applying for FHA loans are always concerned about requirements, and rightly so. While the FHA loan is an excellent option for credit-challenged home buyers, the Federal Housing Administration does its due diligence in assuring that neither it nor the lenders providing your loan will end up on the losing end of a foreclosure. Therefore, it behooves borrowers to know the limitations regarding these loans going into the application process.
Credit Score and Down Payments: The biggest factor in determining your suitability for an FHA loan is your credit score. This will determine not only the interest rate you’ll pay on the loan, but also the down payment expected and whether you’ll qualify at all. For more detailed information on how your current FICO credit score will affect your interest rates and down payment, click here.
Loan Limits: The next factor you’ll need to consider is what type of home you’ll be seeking and what your spending limit will be. This will, in part, be determined by the FHA loan limits in the state in which you live. Click here for the specifics on loan limits and how they’re determined.
For specific guidelines regarding restrictions in Texas or Florida, please visit our page on FHA Loan Restrictions by State.
These aren’t the only factors that can affect your approval for an FHA loan. While the experienced professionals at Home Loan Corp will walk you through the entire process to make sure that you’ve covered all your bases, here are a few things to consider:
Property appraisal & inspection – FHA applicants should expect to pay for a property appraisal and an inspection. Since the Federal Housing Administration accepts risk on the loan, this can also affect any safety- or inspection-related work or improvements on the home that may be required prior to closing.
Closing costs – Though there are almost always closing costs associate with a home loan of any type, the closing costs associated with an FHA loan can be quite specific. For some additional information on FHA closing costs, check out our detailed page here.
Debt to income ratios – This relates to the size of the loan for which you are likely to be approved. Again, the FHA assumes a risk by guaranteeing a loan, so they are not going to take a chance on any borrower who appears to be overextending his or her reach. This is where debt-to-income ratios come into the picture. The first is the mortgage to effective income ratio, which is determined by dividing your total mortgage payment (including all taxes and fees) by your gross monthly income—the maximum percentage for this ratio is 31%; the second ratio is the total fixed payment to effective income ratio, which is determined by adding your total monthly debt (mortgage, student loans, car loans, etc.) by your gross monthly income—this percentage may not be more than 43%.
Federal debt restrictions – Though FHA guidelines can be relatively accommodating to those with previous foreclosures or bankruptcies, anyone with delinquencies on any federal debt, including tax liens and student loans is not eligible for an FHA loan.
Mortgage insurance – This is simply a measure that protects FHA lenders against losses on possible defaults.