How to Qualify for an FHA Loan


BY The Lenders Network

qualifying for an FHA loan

3 minute read

FHA loans are popular because they are easier to qualify for than traditional mortgage loans.

With just a 580 credit score and a 3.5% down payment you may qualify.

But, is an FHA loan a good option for you?

Here are the qualifications for FHA mortgages.

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1. Must Have a Minimum 580 Credit Score

FHA requires at least a 580 credit score to qualify for an FHA loan. While some lenders are able to use as low as a 500 score with a 10% down payment they are very difficult to qualify for. Of course the higher your fico score the better chance you have of getting approved.

FHA loan credit requirements

2. Have a Clean Credit History

Lenders look at more than just your credit score when looking at your credit report. Your entire credit history is taken into consideration. Multiple late payments within the past year or excessive collection accounts can be a reason you’re not approved even if your credit score is good enough.

3. Save 3.5% for the Down Payment

FHA mortgage loans are very popular, especially for first-time homebuyers because of their low down payment requirements. The 3.5% down payment is one of the lowest down payment requirements of all types of home loans.

4. Be able to Verify Your Income

You not only need steady employment history, usually about 2 years worth. You need to be able to verify your income with w2’s, paycheck stubs, and tax returns. If you are a commission only employee a lender will take your average income over the past 2 years.

5. DTI Ratio Below 43%

Debt-to-income ratio, or DTI ratio is the amount of your income that goes towards debt payments, such as mortgage, auto loans, credit cards, etc. The maximum DTI ratio allowed for FHA loans is 43%.

Home affordability calculator with PMI, taxes, and insurance

6. Have Extra Cash in the Bank

You can’t be left with nothing in your savings account after closing on your home. You need cash reserves, lenders want to see borrowers with 3-6 months worth of mortgage payments left in savings after closing. Homeownership can be expensive, if anything comes up financially you need to be able to stay afloat.

7. Budget for all FHA Loan Costs

An FHA mortgage comes with more than just a principle and interest payment. Property taxes will be the most expensive extra cost involved with homeownership. Property tax rates vary by state and county and can be as high as 2.5% in states like Texas.

Mortgage insurance will also be required for FHA loans with a rate between .80%-1.05%. Other costs are homeowners insurance and HOA fees. Everything except HOA fees will be included in your monthly mortgage payment and will go to an escrow account to be paid out annually.

8. Do Not Exceed the FHA Loan Limit

The FHA has loan limits that vary by country. The limit is based on the cost of living in a particular city. High cost areas such as San Fransisco and Los Angeles have a $679,650 loan limit, whereas low cost areas such as Dallas has a $296,515 loan limit. To find the limit in your area visit the HUD website.

# of Units Low-Cost area loan limit High-Cost area loan limit
 
1 Unit $294,515 $679,650
2 Units $352,950 $814,500
3 Units $426,625 $984,525
4 Units $530,150 $1,223,475

Apply with an FHA Lender

Most lenders offer FHA loans, from your local bank or credit union to online lenders.

The Lenders Network has a large network of FHA lenders that can help you through the mortgage process. Get loan quotes and check rates from up to 4 different lenders.

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