The FHA loan program is a government loan that was designed to increase home-ownership. Its guidelines allows for lower down payments than what is referred to as a conventional loan. It can be less expensive than other types of real estate mortgage home loan programs and have credit guidelines that include more people, however it does have strict mortgage amounts and documentation rules. This is a loan program that has specific rules and requirements. Its eligibility requirements are well documented; here are the basics of what is needed to know:
Qualifying Properties: The property purchased must be intended to be owner occupied – meaning the borrower is intending to live in the property as their primary residence. FHA lends on Single Family Real Estate Homes (SFR), Condo’s – (approved condominium complexes less than 4 stories)* and PUD’s – (Public Urban Developments). HUD limits the maximum loan amount it will insure. It varies by state and property type. Use the HUD site for loan limits to determine the maximum loan amount is the area you wish to purchase a home.
Qualifying Income: A documented, stable source of income is required. FHA specifically states that two years of steady employment with income the same or increasing during that time frame. It is preferred that the employment be with the same employer. The new mortgage payment should be approximately 30% of your gross (before taxes) income.
Qualifying Credit: The borrowers’ credit report should typically have less than two thirty day late payments in last two years with a minimum credit score of 620 or higher. Borrowers with previous bankruptcies will be considered IF the bankruptcy’s is at least two years old, and the borrowers have had perfect credit since the discharge. Foreclosures will be considered IF the foreclosure is at least three years old and the borrowers have had with perfect credit since.
Qualifying Down Payment: FHA requires a down payment of 3.5% of the sales price. Borrowers are allowed to receive the down payment for the purchase of a home as a “Gift” (meaning you do not have to pay it back), from a family member or non-profit organization. The seller of the home cannot provide any of the down payment funds. If you are using your own funds from a 401K that must be repaid, that amount borrowed with be considered part of your monthly debt repayment calculations.
Providing Documentation: The items covered above all deal with the credit standards needed to be met to quality for a loan. All of these facts will be verified by third party information sources. For instance employment will be verified with your employer, W-2’s and pay-stubs will be required. The source of the down payment will be verified for its source and repayment terms (retirement accounts only). Be prepared to provide a lot of paper.
Not ever lender in your market is qualified to make FHA loans. To find a qualified FHA lender can pre-qualify any borrower. To find a lender look to HUD’s lenders site for a lender near you.