Do You Qualify for an FHA Loan?


If you are in the market for a new home or want to refinance your mortgage, you may want to consider applying for a loan insured by the Federal Housing Administration (FHA).

“An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan,” writes Bankrate.com contributor Marcie Geffner.

If you are in the market for a new home or want to refinance your mortgage, you may want to consider applying for a loan insured by the Federal Housing Administration (FHA).FHA loans tend to be attractive because of their low interest rates and flexible qualification requirements. Here’s how you can tell whether you qualify.

Minimum Credit Score

The minimum credit score required to qualify for an FHA loan is 580. However, according to LendingTree, an online brokering service, you may still be eligible for FHA financing with a credit score between 500 and 579 as long as “the percentage of the home loan compared to the value of the property is 90 percent or less.” In other words, you would need a down payment of at least 10 percent of the purchase price.

“People with credit scores under 500 generally are ineligible for FHA loans,” Geffner writes. “The FHA will make allowances under certain circumstances for applicants who have what it calls ‘nontraditional credit history or insufficient credit’ if they meet requirements.”

Unfortunately, you cannot inflate your own qualifications with a co-applicant, such as a spouse, who has a high credit score, as the decision to insure the two of you will be based on the lower score.

Minimum Down Payment

The FHA requires a minimum down payment of only 3.5 percent of the purchase price of the home from most borrowers, which Dennis Geist, senior director of compliance and fair lending at Treliant Risk Advisors, says makes them a “huge attraction.” The money can be taken straight from a personal savings account, gifted by a family member or even granted by the state or local government via a down-payment assistance program.

Minimum Debt Ratio

To qualify for an FHA loan, you will need to show that your current income is good enough and your debt is low enough that you can take on the loan. According to the guidelines on the FHA.com website, the total mortgage monthly payment—including principal and interest, insurance premium, hazard insurance and escrow deposit for taxes—must amount to no more than 31 percent of your gross monthly income, including your spouse, if married. The total debt-to-income ratio must also be no higher than 43 percent.

Home Requirements

The FHA’s requirements are fairly lax with regards to your personal financial situation, but not with regards to the home for which you are seeking a mortgage.

“FHA home requirements regarding minimum property standards are pretty strict when it comes to safety and living conditions,” warns LendingTree. “Properties must meet national and/or state building codes, and must be ‘marketable’ single-family units.”

Though the FHA has strict requirements for the quality of the home, its requirements for the type of home are more relaxed. Homes may include townhouses, duplexes, condominiums and single family residences, and may even be for financing manufactured mobile homes.

These are the main requirements for qualifying for an FHA loan, though there remain a few other, smaller requirements and caveats. Most people in good financial standing should have no trouble obtaining an FHA loan. If you have more questions, talk to your FHA lender or an FHA loan specialist at your financial institution to find out if you qualify.

 

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