Confused about what it takes to qualify for an FHA Loan?
Whether you are a First Time Home Buyer, a current home owner looking to buy your next home or an experienced homeowner looking to size down, today’s market conditions can seem confusing and overwhelming.
So what are the basics requirements to qualify for an FHA Loan ?
First, the property you purchase MUST be intended as your Primary Residence.
Next is meeting the credit worthiness requirements for FHA Loans
- Minimum credit score of 580 for enhanced programs, 640 for standard FHA guidelines
- Bankruptcy (Chapter 7)- Generally the requirement is 2 years from discharge date. It is possible to qualify for a mortgage in less than 2 years if the bankruptcy was filed due to circumstances out of your control (example: unemployment, medical bills not covered by insurance. Divorce is NOT considered to be outside of an applicant’s control
- Bankruptcy (Chapter 13)- If all payments have been made and the bankruptcy has been discharged, the applicant is eligible to apply for a mortgage. If the bankruptcy has NOT been discharged, the applicant must show proof of making at least 12 payments and must obtain approval from the court to apply for the loan
- Foreclosure/Short Sale- You will be eligible for financing once 36 months as passed since the Foreclosure. If the mortgage involved in the short sale did NOT have ANY late payments during the last 12 months of the account, then you can obtain a mortgage after 12 months.
- A minimum 2 year history must be verified. A Verification of Employment will be obtained by your lender for each employer listed
- Employment must be verified as being in the same industry/field. If you recently graduated from school and have a job in which you don’t have a full 2 years experience, verification of schooling could satisfy this requirement
- Retirement, Disability, alimony and child support income does not require a 2 year history but verification that it will continue for at least 3 years is required in order for it to be included
- Income must be shown to be stable and likely to continue. When attempting to use overtime, bonuses, part-time employment etc, a 24 month history is generally required. You will need to provide current pay stubs, 2 years of W-2’s and 2 years of Federal Tax returns
- You must have sufficient cash to cover the down payment any closing costs or fees not paid by the seller.
- The funds for the transaction can be wholly or in part from a gift provided by a family member
- FHA does not require additional cash to cover a certain number or mortgage payments or unplanned expenses (cash reserves), however, your ability to accumulate liquid assets and the amount of assets currently available is taken into consideration in the overall credit worthiness analysis. 3 months of cash reserves are required if the property being purchased is 3-4 units
- You will need to provide 2 months of current bank statements to verify your current assets.
Debt to Income Ratio requirements
The rule of thumb is this : All monthly obligations (car payments, credit cards, student loans, alimony, child support etc) and new estimated mortgage payment should not exceed 45% of the usable, gross monthly income. However, higher percentages can be approved.
Excellent credit history, good employment history, good cash reserves, little to no increase in housing payment are compensating factors that will be considering when allowing higher debt to income ratios.
And those are the basics to qualify for an FHA loan. For more in-depth explanation, please contact me, I’ll be happy to answer any and all questions.