This is part of an ongoing blog series where we address common questions relating to FHA-insured mortgage quotes. Today’s question is: What do you need to qualify for an FHA loan these days?
The short answer is that you need decent credit, a down payment of at least 3.5%, a manageable level of debt, and a steady and reliable income. Those of the basic things you will need to qualify for an FHA loan. Let’s look at each one of these factors in detail.
Here Is What You Need to Qualify for an FHA Loan
It’s important to realize that the FHA does not lend money directly to borrowers. To apply for one of these loans, you will need to submit an application through a regular mortgage lender, just like with any other type of mortgage. The FHA just insures the loan to give the lender protection from borrower default. So you need to meet the lender’s guidelines in addition to those set forth by the Federal Housing Administration.
We speak to mortgage lenders nationwide on a regular basis to make sure that we are giving out accurate information to our readers. Based on those conversations, and the official guidelines set forth by HUD, we are able to answer the question “what do I need to qualify for an FHA loan?”
Here’s a checklist of items you’ll probably need to qualify for this program:
1. Down payment. Current HUD guidelines require borrowers make a down payment of at least 3.5%. Specifically, that’s 3.5% of the appraised value of the home or the purchase price, whichever is less. These funds can be gifted from a family member, or from some other approved donor. While some FHA requirements have leeway and flexibility built into them, the down payment is a more of a hard-and-fast rule. This is just one of the things you will need to qualify for an FHA loan.
2. Decent credit. To qualify for the 3.5% down payment mentioned above, you’ll need a credit score of 580 or higher. That’s the official minimum score established by the Department of Housing and Urban Development. But mortgage lenders can establish their own guidelines on top of these minimums, and this is known as an “overlay.” So you might need an even higher score to qualify for an FHA loan. These days, most lenders look for a score of at least 600 for FHA borrowers. But that’s not set in stone.
3. Manageable debt. When you apply for an FHA loan, the lender will review your current income and debt level to make sure you are not taking on too much debt (with the addition of the mortgage payments). So you need to have a manageable level of debt to qualify for an FHA loan. The official handbook states that borrowers should have a total debt-to-income no higher than 43%. But there are also exceptions to this rule, as we have covered here. In short, borrowers with excellent credit and/or a history of making timely mortgage payments might be allowed to have a higher debt level.
4. Steady income. For obvious reasons, you need to have some form of income to qualify for an FHA loan. That’s because you need to make your mortgage payments each month. Lenders will verify your employment and/or income thoroughly, before approving you for an FHA loan. They will look at your annual tax returns and W-2 tax forms, generally for the last couple of years. They’ll also review your most recent bank statements and pay stubs to verify income. (See: general income requirements)
5. Home appraisal. This is another important item you’ll need to qualify for an FHA loan. Any home being purchased through this mortgage program has to be appraised by an approved property appraiser. There are two purposes for this appraisal. First, the appraiser will determine the current market value of the property to ensure that it lines up with the purchase price. Secondly, he will evaluate the home inside and out to make sure it meets the FHA’s minimum property requirements. These requirements include structural integrity, safety, and other factors relating to the health and wellbeing of the homeowner.
This article answers the question: What do you need to qualify for an FHA loa?. If you would like to learn more about any of the individual items discussed in this article, be sure to follow the hyperlinks to related information. Be sure to check out our article library as well.