In this blog, we are going to run through the minimum FHA Loan Requirements. FHA loans historically have been one of, if not the easiest loan to qualify and get approved with less than perfect credit and credit scores down to 500 FICO.
FHA loans are the most popular loan program for borrowers with bad credit. This is due to the fact that the minimum requirements are rather lenient when compared to Conventional loans. FHA Loans are very popular amongst first-time home buyers as well as people without the best credit history.
The reason why FHA loans are so popular is the credit guidelines are substantially lenient for borrowers with bad credit and low credit scores. If you have a minimum FICO credit score of 580 or greater, you are able to get an FHA loan with only a 3.5% down payment. You can qualify for FHA loans with 500 credit scores. Borrowers with under 580 FICO and down to 500 credit scores require a 10% down payment.
The one caveat comes with a credit score of 620 and this is if you are under a 620 FICO, you can only have a lower debt to income ratio to get an approve/eligible per automated underwriting system (AUS). Meanwhile, if you are over 620 FICO, your debt to income ratio can be as high as 46.9% front-end and 56.9% back-end. Higher credit scores will have you have the maximum of 46.9% front-end and 56.9% back-end debt to income ratio in getting an AUS approval.
With a higher credit score, you have a lot more buying power for having a higher credit score. The debt to income ratio is the amount of monthly debt with your new house payment divided by your monthly gross income. In the next few paragraphs, you will see the FHA Loan Requirements that must be followed.
With the new FHA Loan Requirements, there were some changes dealing with FHA Home Appraisals. The new FHA Home Appraisals need to document a three-year chain of title on all home appraisals and need to refer to 2 sources from the MLS and/or public records. Along with checking the history of the home, the appraiser needs to make sure all appliances are operational. The utilities need to be on at the time of inspection. The appraiser will also evaluate the last 12 months of ownership of the property to check for the undisclosed identity of interest property transactions.
This is a big change coming on the FHA Loan Requirements. It has to deal with deferred student loans. In the past, as long as student loans were deferred for at least 12 months, the debt wasn’t included in the borrower’s debt to income ratio.
With the updated FHA Loan Requirements, the minimum monthly payment is what will be calculated into the debt to income ratio. If this is not available, then an amount of 0.50% of the outstanding student loan balance will be used to calculate the amount factored into your debt to income ratio. HUD now allows Income-Based Repayment (IBR payments) to be used on student loans. HUD now allows IBR payments on student loans.
The old rule with installment debts of less than 10 months remaining was that they were excluded from the borrower’s debt to income ratio calculations. However, with the FHA Loan Requirements, installment debt of 10 months or less remaining can be excluded in your debt to income ratios only if the payment is 5% or less than your gross monthly income.
Updated FHA Loan Requirements state if a borrower has changed employers more than 3 times in the past 12 months, the lender is required to take measures and steps to verify that the borrower has the stable employment. The income is likely to continue for the next 3 years. In the past, it was up to the discretion of the underwriter to decide if there was confidence in income, but not so much these days.
According to FHA Loan Requirements gift funds are allowed by FHA loans. If the gift funds are given to the borrower for a down payment, then the lender will need to verify those funds. The lender will make sure the funds have been in the borrower’s bank account for 30 days.
As you can see there are some new changes in the FHA Loan Requirements. So make sure you work with an educated professional in this field if you are in the market for an FHA loan. To qualify for an FHA loan with a mortgage company licensed in 48 states with no lender overlays on government and conventional loans, please contact us at Loan Consultants at 844-275-2007. Text us for a faster response. The team at Loan Consultants is available 7 days a week, evenings, weekends, and holidays.