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.
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January 20, 2025The FHA Streamline Refinance offers a refinance option for those who don't want to cash in on their property's equity but instead want a lower payment or interest rate or who need to get out of an adjustable-rate mortgage. This streamlined program, designed specifically for those already in an FHA-insured mortgage, simplifies the refinancing process with fewer requirements and faster approval times depending on the transaction.
January 16, 2025Want to buy a home and thinking about getting an FHA loan? FHA loans are a great way to make homeownership happen, especially if you're a first-time buyer or don't have perfect credit. But you might wonder, "Can I get more than one FHA loan?"
The short answer is, it's tricky. The FHA itself doesn't say no automatically to having more than one loan. But there's a caveat. FHA loans are about helping you buy a place to live in – your main home base. Because of this, and a few other things, getting multiple FHA loans isn't easy.
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.
