Today’s mortgage lending practices are changing at a very rapid rate. Added regulations and loan requirements along with the credit crisis and the demise of sub-prime loan programs has meant that it is much more difficult to get approved for a mortgage loan today than it was only a few years ago.
Millions of families that could get a home loan a few years back now find themselves with very few or no options for their mortgage needs. Today, it is very common for an FHA Loan to be the only program that a borrower can qualify for. FHA Loan applications are have grown to become the most popular loan program in America, and for good reason. Each year, more and more home buyers are turning to the stability and flexible terms of government-insured FHA Loans. In 2009, over 3 million FHA Loan applications were submitted for home purchases and refinance. That number increased from 1.9 million in 2008. While FHA Loans are a very popular and flexible option available today, the borrower must meet certain FHA Loan Guidelines in order to qualify. Some of the more notable guidelines are listed below.
FHA Loan Credit Guidelines
In order to qualify for an FHA Home Loan today, a borrower will almost certainly have to have a middle FICO credit score of 620 or higher. The middle FICO credit score is determined by eliminating the high and the low credit scores provided by the three major credit bureaus (Equifax, Experian and TranUnion). Today, a 620 credit score is required by nearly every lending institution in America today for any loan program.
It may be possible to have a Bankruptcy in the borrower’s past and still be approved for an FHA Loan, but additional rules and guidelines will apply. If a borrower had a Chapter 7 Bankruptcy in their past, they can not apply for an FHA Loan until 2 years after the discharge date of their Bankruptcy. If the borrower’s bankruptcy was a Chapter 13, they must have evidence that they paid all court ordered obligations on time for at least one year before they can apply for an FHA Loan.
FHA Loan Income Guidelines
Providing income documentation is a very integral part of the application process for FHA Loans. The borrower’s current income ultimately determines their ability to repay their loan on time. Income can be documented by W-2’s or 1099’s and tax returns.
To qualify for an FHA Loan, the borrower’s income must be enough to meet or exceed the minimum Debt-To-Income Ratios, or “DTI”, provided by the FHA Loan Guidelines. The current minimum DTI Ratios for FHA Loans are 31 and 43 percent. This means that the borrower’s new house payment should not exceed 31 percent of their monthly income and their total expenses, including house payment, car payments, credit cards and any other expenses reporting on their credit report should not exceed 43 percent of their monthly income.
FHA Loan Property Guidelines
Single family homes, HUD approved condo’s, and duplexes (2, 3, or 4 unit) are acceptable properties for an FHA Loan. For a property to meet FHA Guidelines and be approved for an FHA Loan, it must first pass an appraisal inspection by an FHA-approved appraiser. It must be in good condition and can not have any disqualifying conditions such as a worn out roof, structural issues or missing external siding or paint. Only an FHA appraiser can determine if the property is within guidelines.
Another very important aspect is the appraised value of the property. If the transaction is a purchase, the home must be able to appraise for at least the purchase price of the home and the loan amount can be 96.5% of that. If the transaction is a refinance, the requested loan amount can not exceed 97.75 of the appraised value of the home for a rate/term refinance or 85% of the appraised value for a cash-out refinance.
FHA Loan Guidelines to Remember
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You will almost always need a 620 credit score or above to qualify for an FHA Loan.
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You must have enough documented income to meet the DTI ratios of 31% and 43% to qualify for an FHA Loan.
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The property must cantain enough equity to support the requested loan amount for an FHA Loan.
You may want to use the following resources to learn more about FHA Home Loans:
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