In a nutshell FHA offers federally insured mortgage programs that assist first time home buyers in getting into a home. The FHA program works by having the FHA Loan insured by the Federal Housing Administration which is a branch of the U.S. Government. So there are FHA Requirements which are enforced which reduce the risk of loan default. By allowing a guaranteed mortgage such as FHA, lenders are far more willing to lend since they have more of a guarantee of getting the money back if the mortgage goes into default.
Important Factors to Know
- You do not need to be a first time home buyer in order to qualify for FHA Loans.
- You do not need to be low-income in order to qualify for FHA Loans.
- You do not need to be a U.S. citizen to qualify for an FHA Loan.
Simple FHA Loan requirements to get into an FHA Loan
- Must have a valid Social Security Number (SSN)
- Must be a legal U.S. resident.
- Must be of age to sign legally binding documents.
- Does not require any credit history.
- Must not have had a Chapter 7 Bankruptcy within the last 2 years.
- If you have a Chapter 13 Bankruptcy you must be making on-time payments.
- FHA loan payments may not exceed 29% of your monthly income.
- All your credit combined including your FHA loan, may not exceed 43% of your monthly income.
- Must be able to pay a minimum 3% down payment.
- FHA will not exceed a 97% loan to value.
- FHA Loan limits may not exceed state and county loan limits. (Find your state and county FHA loan limits)
Understanding Debt to income & Loan to Value
- Debt to income: Debt to income is considered as the ratio of all the monthly payments a borrower is making in comparison to their monthly income. This does not include bills such as utilities. For Example: If the borrower has a monthly income of $1,000 and pays monthly payments of $400 which go to their car payment and perhaps a student loan, than their Debt to income ratio is 40%. This is because $400 is 40% of the borrower $1,000 monthly income.
- Loan to Value: Loan to value is considered as the ratio of the loan amount in comparison to the value of the property. For Example: If the borrower has a property that is appraised at a value of $100,000 and they owe $80,000 on the current mortgage for that property. The Loan to value or “LTV” is 80%. That is because $80,000 owed is 80% of the $100,000 value of the home.
Additional FHA Loan Requirements
Note: Getting a Fixed Rate FHA Loan does not have additional Loan Requirements.
- Streamline Refinance
- Cash Out Refinance
- Adjustable Rate Mortgage
- Reverse Mortgage
- Rehab Loan
- Condo Loan
- Energy Efficient Mortgage
- Graduated Payment Mortgage