The FHA Mortgage Program has been around since 1934 and has helped over 34 million people become homeowners by expanding the eligibility requirements banks set for home loan financing.
This guide will help answer your initial questions about how you can become eligible for an FHA loan to purchase a home or lower your current interest rate on an existing home loan through the FHA Streamline Refinance Program.
Please feel free to call Best Rate FHA Home Loans at 888-672-1015 to see if your personal lending scenario is eligible for the FHA Loan Program.
Eligibility Overview For FHA Loans
The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance on loans made by FHA-approved lenders to individuals. Basically, the purpose of the FHA Program is to provide mortgage insurance for a person to purchase or refinance a primary residence that is being funded by a lending institution to protect the bank in the case where a the borrower is unable to continue making mortgage payments and defaults on their loan.
There are many variables that determine eligibility including occupancy, property types, and credit.
Basic FHA Loan Eligibility Requirements Include:
- The borrower be a permanent resident of the financed home.
- The borrower is eligible for approximately 96.5% financing (3.5% down payment)
- The borrower is able to finance the upfront mortgage premium into the loan.
- Eligible properties are one-to-four unit structures.
- The borrower must have a steady employment history or worked for the same employer for the past two years.
- The property must be appraised by an FHA-approved appraiser and meet certain standards .
- The borrower must have established a clean credit history for the past one – two years.
With regards to credit score and history requirements, the FHA is very flexible provided the borrower can document and explain any past discrepancies. Either way, let us help you determine your eligibility in by calling 888-672-1015.
FHA Eligibility Requirements
Many people have questions about occupancy requirements when getting an FHA home loan.
The borrower needs to be occupying the financed home as their primary residence, which means that the owner must be residing in the home the majority of a calendar year. Following closing of the loan, FHA loans require the borrower to be residing in the home within 60 days of closing.
FHA loans are not available for non-owner occupied residences such as secondary homes and investment properties. There are very rare cases that you will be able to take out an FHA loan on a secondary and will have very strict requirements. Rental properties are not allowed for an FHA loan as the owner must occupy the residence in which the loan is taken out on. The only exception to this rule is if is a multi-unit property and the owner occupies one of the units.
There are many eligible property types for FHA mortgage loans:
- Single family homes
- Multi-unit properties (up to four units)
- Manufactured homes
To be clear about what each property type is, you should read the following to make sure your property is eligible for an FHA mortgage loan. A single family home is a stand-alone property or one that shares one common wall with another building. If it is attached to another building, there must not be any access from the building to your home. Investment properties, however, are not eligible to be FHA insured.
A townhome is a home that is attached to other units in a row. Each unit shares a common wall with the surrounding units along with the same roof. Each of these units is built to house an entire family and meets FHA loans eligibility.
Multi-unit properties are allowed and meet FHA mortgage eligibility requirements. Multi-unit properties with up to four units are FHA insurable as long as the owner occupies one of the units. If the owner does not occupy any of the units, the property does not meet FHA eligibility requirements.
Condominiums are one unit of a multi-unit complex. The owner only owns the inner walls within the home but do not own any portion of the outside property or building. Usually, the owner is required to pay condominium associate fees that help pay common areas on the property such as pools, gyms, and clubhouses. It is important to understand that if the FHA loan is on a condominium that the entire condominium community must meet FHA eligibility requirements.
Manufactured homes are homes that have been built in a factory and then shipped to the building site. It is then placed on a permanent foundation and can then be recognized as an immobile property and can be FHA insured. Some additional requirements for manufactured homes include a minimum square footage of 400, meet strict safety guidelines, and constructed after June 15, 1976. The foundation and elevation of the land underneath must also meet FHA eligibility requirements. Lastly, the borrower must own the land underneath the home in order to be FHA insured.
FHA mortgage eligibility doesn’t look for perfect credit. Most conventional loan lenders look for a credit score in the 700s but FHA mortgage requirements typically only require a 620 credit score. Additionally, FHA loans eligibility allow up to two thirty-days late marks on your credit report.
FHA loan requirements will also make exceptions for those who don’t have any credit history. Usually in the case of no credit history, recent utility bills and proof of payment will be acceptable.
Foreclosures and bankruptcies also won’t disqualify you from an FHA loan. Foreclosures are accepted as long as the foreclosure is at least three years old. Bankruptcies are accepted as long as the bankruptcy is at least two years old. If the borrower has had a foreclosure or bankruptcy, they must display good credit maintenance since the date of foreclosure or bankruptcy.
However, this waiting period for many is now short-lived since the FHA has now established a new program for borrowers who may not have been able to qualify before due to foreclosures, short sales, or bankruptcy and was required to wait for a certain amount of time before they can try to purchase a home again. With the extenuating circumstances exceptions guideline now in effect, many borrowers are able to buy again after these reasonable economic events.
FHA mortgage lenders want to see at least two years of continuing employment with steady or increasing income and very few gaps of unemployment.
FHA loans eligibility are more lenient allowing up to 30% ratio of monthly gross income to monthly mortgage payment. Most conventional mortgage loan lenders will not allow you to exceed a 28% ratio. For example, on a monthly income of $4,500, FHA loan lenders will allow your monthly payment to be up to $1,350 whereas a conventional mortgage lender will only allow a payment as high as $1,260.
If you meet all of the FHA mortgage eligibility requirements and are ready to begin the application process, use the following checklist to gather your preliminary documents:
- Most recent residence (past two years history)
- Social Security card
- History of past two years of employment
- Gross monthly income at current employer
- Bank account information
- Information on all active loans
- Information on any other owned real estate
- Approximate value of all personal property
- Past two years of W-2 forms
- Current paycheck stubs
- Past two years of personal tax returns
The FHA mortgage eligibility requirements only ask for a 3.5% down payment. This is far less than the conventional mortgage lender requirement of 5% a down payment. Many people in today’s economy don’t have a ton of money available for a steep down payment in order to purchase a property.
The 3.5% down payment is calculated using the property’s sale price. This means for a home that is $600,000, your down payment for an FHA mortgage will be only $21,000 whereas a conventional mortgage loan will require a down payment of at least $30,000. That’s a $9,000 difference and can definitely make or break a decision to buy your dream home.