FHA Qualification

The guidelines for FHA qualification are fairly flexible. This makes an FHA mortgage one of the easiest types of mortgage loans to qualify for.

The Federal Housing Administration (FHA) is part of the United States Department of Housing and Urban Development (HUD). The FHA is responsible for developing affordable, FHA-insured mortgages to help consumers qualify for a home loan. With an FHA guarantee, homebuyers can qualify for a loan even if they have some credit problems or a limited credit history which might otherwise keep them from qualifying for a conventional mortgage loan.

The homebuyer obtains the loan from a bank or other private lender but the mortgage is backed by the FHA, so the lender has a guarantee that the loan will be repaid. The FHA approves certain lenders to offer FHA-insured loans.

Many homebuyers prefer FHA loans because of the special features:

• Easier Qualification – Lenders are usually more willing to make loans with lower qualifying requirements since the loans are insured by the FHA.
• Lower Credit Requirements – Homebuyers can usually qualify for the mortgage, even if they have had bankruptcy or other credit problems.
• Low Interest Rates – The loan rate can sometimes be lower than competitive interest rates, since the loan is insured by the Federal government.
• Low Down Payment – Homebuyers can put down a down payment of only 3 percent on a FHA loan, compared to the 10 to 20 percent down payment required on a conventional mortgage. The money from the down payment does not have to come from the homebuyer, and in fact can come from family members or other sources.
• Low Closing Costs – Homebuyers are not charged for many of the fees required on a conventional loan, so there are fewer charges on the actual cost of the loan.
• Special Homebuyer Programs – Special mortgage programs are available for community revitalization areas such as:
  • Good Neighbor Next Door – Up to 50 percent of the list price of the home is discounted for law enforcement officers, teachers and firefighters to encourage them to live in the community in which they work.
  • Indian Home Loan Guarantee Program – Native Americans and other homebuyers are able to purchase homes on tribal lands from local lenders.

A homebuyer must meet the standard qualifications for homeownership including sufficient income to pay the monthly payment, a current history of good credit payment practices, and enough cash to pay the closing costs. FHA qualification guidelines start with the standard qualifications and then add a few FHA-specific factors:

• The homebuyer must:
  • Have a valid Social Security Number
  • Be a legal resident of the United States. United States citizenship is not required.
  • Be old enough to sign a mortgage in the state in which the loan is being made. There is no upper-age limit for a borrower.
• The homebuyer must have a debt-to-income ratio of 28 percent to 30 percent. This means that the homebuyers total debt (including payments on cars, loans, credit cards and child support) cannot exceed 28 to 30 of their gross income.
• The homebuyer must be able to show a recent record of good credit and payment history:
  • A credit report with less than two thirty day late payments
  • Good credit in last two years
  • No bankruptcies in past two years
  • No foreclosures in past three years, with good credit in past three years
  • A record of bill payments. A lender cannot reject the mortgage application based on a lack of credit history. Lenders may review payment history on home or apartment rentals, auto insurance payments and utility payment records.
• The homebuyer must have the ability to repay the mortgage:
  • Two years of continuous employment, ideally with the same employer
  • Consistent or increasing income over the last two years
  • Mortgage payment should not be more than 30 percent of your gross income
• The homebuyer needs to have the required cash to close the loan. Common sources of cash include:
  • Savings and checking accounts
  • Gift funds
  • Home sale proceeds
  • Rental credit

FHA provides a qualification worksheet onto which you can record your income, debt and savings information. Once you have completed the worksheet, you can use the mortgage calculator to estimate the amount of mortgage that you can afford.

The following resources provide additional information on FHA-insured mortgages:

• HUD website
• FHA loan qualifying summary
• FHA frequently asked questions

• Rent to Own By Owner
• List of Popular Mortgage Companies
• FHA Loan Guidelines

• FHA Mortgages and Home Inspection Requirements
• Help for Single Moms to Buy a House
• Escrow
• FHA Debt to Income Guidelines
• Free Home Inspection Forms

• FHA Mortgages and Home Inspection Requirements
• FHA Home Loan
• FHA Loan Requirements
• FHA Credit Requirements
• FHA Underwriter