FHA Loan Requirements for 2021 and Beyond
October 16, 2021
HOW TO QUALIFY FOR AN FHA LOAN
To qualify for an FHA home loan, borrowers need to meet a few requirements and follow some guidelines.
The FHA requires a low down payment of just 3.5% when buying a home, with a minimum credit score of 580. Compared to conventional loans, which typically require a score of at least 620, this is an easier requirement for many potential homebuyers to meet. The FHA makes it even more accessible to borrowers with lower scores between 500 and 579, who are required to pay a down payment of at least 10% on the home purchase.
Since the FHA has no income limits for borrowers to qualify, it judges a borrower’s ability to repay their loan with their debt-to-income ratio. According to HUD Handbook 4000.1, applicants must have a “maximum qualifying ratio” of 43%. This number is calculated by adding up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) as well as all recurring monthly debt (car loans, personal loans, student loans, credit cards, etc.), then dividing by the gross monthly income.
The FHA sets annual limits for the amount it will insure in home loans. The limits are based on county and property type, and the conventional loan limits set by Fannie Mae and Freddie Mac. The FHA loan limits are a deciding factor for many borrowers in whether they or not they apply for an FHA mortgage.
OTHER FACTORS TO CONSIDER
Even though there are no income requirements to meet, the FHA does verify income and employment documentation to make sure that applicants have a steady stream of income. It also excludes applicants who have foreclosed on a home in the previous three years.
In an effort to include more Americans in the housing market, FHA loans are available to finance various kinds of housing. The FHA offers Condo Loans, One-Time Construction Loans for new construction, and also Rehab Loans for fixer-uppers. They can be used to purchase single-family homes, multi-family homes with up to four units, and even manufactured homes on permanent foundations. The main rule to know is that any home purchased with an FHA loan must serve as the borrower’s primary residence. Investment properties are not eligible. There are exceptions for mixed-use properties, with at least 51% of the space dedicated to residence.
Overall, these guidelines make it possible to buy a house with FHA even if you don’t have a super high credit score or a ton of money saved up.
------------------------------
RELATED VIDEOS:
You're Almost There When You Get Your Loan Approval
Learn About the Mortgage Insurance Premium (MIP)
Pre-approval Starts the Mortgage Process
FHA Loan Articles
January 15, 2025Buying a condo with an FHA loan is an option some don’t consider initially, but it’s worth adding to your list of potential property types. FHA loans for condo units traditionally require condo projects to be on or added to the FHA-approved list. Still, changes in policy over the years allow borrowers to apply for FHA loans on condo units in projects not on the list on a case-by-case basis.
December 30, 2024When applying for an FHA loan, lenders will consider more than just your credit scores and history. They also look at other factors affecting your risk profile and the interest rate they offer you.
One factor is occupancy type. For FHA loans, this is straightforward because these loans require owner occupancy. Investment properties aren't eligible. While conventional loans may have different rates for primary residences, second homes, and investment properties, this isn't a concern with FHA loans.
December 18, 2024Did holiday spending get the better of you? Are you looking for ways to recover your spending plan as you search for a new home?
The holidays are a whirlwind of festivities, family gatherings, and gift-giving. But amidst the cheer, it's easy to lose track of spending. If you're aiming to buy a home in the near future, those extra expenses can have a bigger impact than you might realize, especially if you're considering an FHA loan.
December 17, 2024The Federal Housing Administration provides mortgage insurance on loans made by FHA-approved lenders, making homeownership more attainable for those who might not qualify for conventional loans.
While financial factors like credit score and debt-to-income ratio are key to loan approval, other non-financial aspects can also cause a denial.
December 11, 2024FHA loans, insured by the Federal Housing Administration, are a popular choice for many homebuyers, especially those who need a lower downpayment or more forgiving credit qualifying requirements. FHA loans are primarily intended for primary residences—homes that borrowers will occupy as their main dwelling.
