Basic FHA Home Loan Requirements

An FHA loan is frequently a perfect match for those new to the housing market. These often do not have liquid funds with which to make a down payment. If you are in a similar position as a first time home buyer and can qualify under the current FHA home loan requirements, you may well dramatically help out your financial situation. This article will explain those basic requirements.

An FHA loan is frequently a perfect match for those new to the housing market. These often do not have liquid funds with which to make a down payment. If you are in a similar position as a first time home buyer and can qualify under the current FHA home loan requirements, you may well dramatically help out your financial situation. FHA loans require down payments of as low as 3.5% of the value of the collateral, a requirement that can be satisfied with gift funds as well as personal assets.

Credit

Currently, your credit is a very important issue for FHA home loan requirements. Lenders consider your credit history as verification of how responsible you have been with money in the past.

First of all, you need two forms of credit for FHA home loan requirements. However if you do not have any credit (this does not make your credit bad), the underwriters will usually accept other types of credit documentation.

Bankruptcy or Foreclosure

Even after having been through bankruptcy proceedings under Chapter 13, if you have been making timely payments for 12 consecutive months or more, you might qualify for one of the FHA loans. You will need to obtain approval in writing from the bankruptcy trustee. If your bankruptcy action was under Chapter 7, you may be eligible if your discharge was two years ago,  you currently have steady employment, and have successfully established and maintained new credit lines.

FHA home loan requirements are nearly impossible to get if you have had a home foreclosed on in the past. But, if things had really been beyond your control and you can show that, the underwriters might look at your application.

Possible Late Payments or Open Collections

An occasional late payment does not automatically make you ineligible.  Underwriters of FHA loans look at the big picture when it comes to your payment history. They are not likely to focus on some isolated incidents.  A few late payments showing up on your credit report does not equal bad credit, and good credit is not absolutely necessary for meeting the loan requirements.

Here are a few other things you must consider. First, be assured that FHA will overlook unresolved collection matters that involve minor amounts, but you will have to pay any final judgments against you before you can apply for such a loan. Moreover, you will not be entitled to apply for an FHA loan if there are federal judgments or tax liens imposed against you.

Cool Down Payment Requirements

One of the best things about FHA loans is that you only need to put down 3.5% of the property's value as a down payment. If you cannot afford this, you can get the money as a gift from family or friends, as long as it is not a loan. This gift can even come from the seller of the property with the right arrangements. There are many nonprofit organizations that facilitate such gift-giving. Thus, you can still meet FHA home loan requirements without the funds necessary for the minimum down payment.

Other Basic Requirements

FHA loans are based on very specific lending limits which vary depending on the kind of housing you are purchasing and the specific location of the property. If you would like some more information about FHA loans, you may want to ask your lending agent to see if the property you are interested in qualifies due to FHA lending limits and standards.

In order to adhere to FHA home loan requirements, assuming you have already been through the credit check, you must demonstrate that your financial position is stable enough that you will be able to consistently pay your mortgage. Generally, two key indicators are used to determine the strength of your ability to repay your mortgage. First, the ratio of your mortgage payment to effective income, and second, the ratio of your total fixed payment amount to effective income.

Your debt to income ratio, or DTI, is expressed in the form of two ratios. The ratio must be no higher than 29/41, on either side, for you to be able to qualify for an FHA loan. If you need assistance in calculating the ratios, there are online tables that can help.

Mortgage Insurance Requirements

The majority of people with FHA mortgages must pay mortgage insurance. Mortgage insurance is required for those mortgage holders that do not have a minimum of 20% down payment on the property and it also provides security for the lender in case the borrower does not pay.

When you buy a house with an FHA loan, your upfront costs will include a mortgage insurance premium equal to 1% (effective October 1, 2010) of the total loan amount. Subsequently, you will pay monthly mortgage insurance premiums figured at a percent of the remaining loan amount.

While conventional loan providers stop requiring mortgage insurance after a certain point, depending on the remaining term of your mortgage and the loan to value ratio (your loan balance divided by your property's market value), this is not the case with FHA. In other words, unless you refinance out of your FHA loan into a conventional mortgage, you will be charged a monthly mortgage insurance premium throughout the entire life of your loan.

These are just a few of the FHA home loan requirements.

Article Tags: Home Loan Requirements, Home Loan, Loan Requirements, Down Payment, Mortgage Insurance

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