FHA Loans Requirements

The Federal Housing Administration insures loans so lenders are more willing to issue a mortgage to buyers who might otherwise not qualify. For the benefits of an FHA-backed mortgage, borrowers have to pay 1.75 percent of the value of the loan at the origination of the loan and 0.5 percent each year as a mortgage insurance premium. The additional 1.75 percent cost of the loan can

Employment Qualifications

To be considered for an FHA-backed loan, you must have been employed consistently for the past two years, preferably by the same company. To prove your steady employment, you must be able to submit the prior two years' tax returns, W-2 forms and 1099 forms as well as your most recent pay stub. If you are self employed, you need three years of tax forms.

Credit Score Requirements

The credit requirements are more lenient for getting an FHA-backed mortgage than a conventional mortgage. There is no official minimum score, but to be approved you will usually need your middle score to be at least 580. During the approval process, the last two years of your credit history will be focused on to see whether you have been paying your bills on time. If you have had a loss of a job or fallen ill, even some credit problems during this time may not preclude you from getting a mortgage. You cannot have had a bankruptcy in the past two years or a foreclosure within the past three years. If you do not have credit history, you will need your recent utility bills.

Savings

You must show how you have the money for the down payment that you will make on the house. You are not required to have a savings account or checking account to get an FHA-backed mortgage but if you do, you will need three months of statements to show your management on money. If you have any other investments like retirement accounts you must have the most recent statement for those accounts. If you do not have any accounts but have money from a recent sale of possessions, you will need a document to show the purchase price to ensure that you are the rightful owner of the money.

Down Payment

A down payment of at least 3 percent is required for an FHA-backed loan. This is significantly lower than the down payments for conventional mortgages, which can be up to 20 percent. You are allowed to have the money for the down payment gifted to you be a friend or relative, but they must submit documentation showing that the money is rightfully theirs to give such as a bank statement.

Income Ratios

You are expected to be able to show they your monthly income is enough to meet all of your debt obligations including the anticipated mortgage payment. Lenders would prefer your mortgage payment to be less than 29 percent of your income, but 35 percent of your income is the maximum to qualify for an FHA-backed loan. For example, if your monthly income was $3,000, your mortgage payment could not be more than $1,050. Lenders also expect that your total debt payments, your mortgage payment plus any other outstanding debts like student loans or car loans, will be less than 44 percent of your monthly income.

References

• FHA Qualifications
• Conventional, FHA and VA Mortgages Back in Popularity