FHA loans are popular because of their low down payment and credit requirements.
If you have at least a 580 credit score you can get an FHA mortgage with just a 3.5% down payment.
In this article, we’re taking a deep look at all FHA requirements and guidelines so you can know if you qualify, or not.
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2020 FHA Loan Requirements
- 500 credit score
- 3.5% down payment with a 580 credit score
- 10% down payment with a 500-579 credit score
- Maximum 43% debt-to-income ratio
- 2 years of stable employment history
- 12-24 month waiting period after bankruptcy or foreclosure
- Financing for primary residences only
- Must meet FHA minimum property requirements.
- No more than one late payment in the last 12 months
- No mortgage late payments in the last 6 months
For more information and how to qualify check out our Complete Guide to FHA Home Loans
FHA Credit and Down Payment Guidelines
The down payment needed for an FHA-insured mortgage will depend on the borrowers’ credit score.
The Federal Housing Administration will insure loans for borrowers with at least a 500 FICO score with a 10% down payment. Borrowers with a credit score of 580 or higher will only need a 3.5% down payment.
When it comes to credit, mortgage lenders will take more into consideration than just a credit score. Late payments, collection accounts, credit utilization ratios are all considered and could be a reason for denial.
For example, two borrowers apply for a mortgage both have a 580 credit score.
- Borrower #1: Has three late payments within the past 12 months and two collection accounts
- Borrower #2: Has no late payments in the past 12 months with no collections
Borrower #1 may have the credit score to qualify, but they will be denied because they have multiple late payments.
Borrower #2 has a much better chance of getting approved for a mortgage because they do not have late payments.
Late Payments and Collections
- Late payments – No more than one 30-day late payment on any accounts within the last 12 months.
- Mortgage late payments – No more than one mortgage 30-day late payment in the past 12 months, and no late payments in the last 6 months.
Bankruptcy and Foreclosure Waiting periods
- Bankruptcy – If you filed for chapter 7, 11, or 13 bankruptcy you must wait at least 24 months after the discharge date to be eligible unless you have extenuating circumstances such as a loss of income or death of a family member.
- Foreclosure – Borrowers who have been through foreclosure must wait 24 months before they are eligible.
- Short Sale – Borrowers with a short sale must wait a minimum of three years before becoming eligible for an FHA loan.
If your bankruptcy, foreclosure, or short sale was due to extenuating circumstances such as a job loss, medical condition, death in the family, etc. that led to financial hardship you may be eligible for an FHA loan after 12 months.
A mortgage underwriter will determine whether the borrowers’ situation qualifies. What they are looking for is good credit and payment history prior to the events that led to financial hardship. Borrowers also have to show that they have recovered financially and are able to pay their bills on time.
FHA Loan Income Requirements
FHA-insured mortgages are available to all borrowers regardless of their income level. However, to be eligible you must:
- Have at least the previous two years of tax returns
- Two years with the same employer, if you have switched employers you must be in the same industry
- Not have any unpaid taxes or tax liens
FHA Documentation Needed
- Photo ID
- Two years of W2’s and tax returns
- Bank statements
- Social security number
FHA Loan Limits
The maximum loan limits for FHA loans in 60% of the U.S. The limits go up to $679,650 is high-cost areas, such as Los Angeles and San Francisco.
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