FHA Loan Eligibility Requirements for Your City, Your State
Since 1934 The FHA has helped over 34 million people become homeowners. Its mortgage insurance program allows lenders to ease their eligibility requirements, making homeownership accessible for people in neighborhoods across the country, including Your City, Your State.
With FHA's insurance, lenders know they'll be paid back if a borrower defaults. That reduces their risk and enables them to lend more liberally.
This guide will answer some of your questions about your eligibility for an FHA purchase loan. And if you're already a homeowner, you'll learn about refinancing through the FHA Streamline Refinance Program.
Eligibility Overview for FHA Loans in Your City, Your State
To be eligible for an FHA loans in Your City, Your State, you must intend to occupy the home. So, rentals or second homes generally don't qualify. The home must be a 1 to 4 unit property (you may be able to get a loan for a multi-unit property if you intend to live in one of them).
Beyond basic eligibility you'll need to meet some minimum qualifications:
- You must have a down payment of at least 3.5 percent.
- You must qualify for financing on the balance of the purchase price.
- You must be able to sustain the monthly payments—including the FHA mortgage insurance premium.
- You must have a steady employment history or have worked for the same employer for at least two years.
- You must have established a clean credit history over the previous two years.
- The property must be appraised by an FHA-approved appraiser and meet certain standards.
About Those Occupancy Requirements
As we've noted, your FHA-insured loan must be for your primary residence. That means you intend to reside there for the majority of the calendar year. And you must move in within 60 days of closing.
Many property types are eligible for FHA mortgage loans:
- Single-family homes
- Multi-unit properties (up to four units)
- Manufactured homes
A single-family home is a standalone 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 that building to your home.
A townhome is a one that is attached to other units in a row. Each unit shares a roof and a common wall with the adjacent units. Each of these units is intended to house a family. These properties meet basic FHA eligibility requirements.
A condominiums is one unit of a multi-unit complex. The owner owns the inner walls and space within the home and shares ownership of the outside property and grounds with the other owners. A condo owner usually pays homeowners' association dues in addition to a monthly mortgage payment. These dues pay for maintenance and repair of common areas such as pools, gyms, green strips, and clubhouses.
Important note: For a condo to qualify for an FHA loan the entire condominium community must meet FHA eligibility requirements.
A manufactured home is built in a factory and then shipped to the property site. It is then placed on a permanent foundation. At that point it is regarded as an immobile property and can be FHA insured.
Some additional requirements for manufactured homes: They must be at least 400 square feet, meet strict safety guidelines, and have been constructed after June 15, 1976. The foundation and elevation of the land underneath must also meet FHA eligibility requirements. And the borrower must own the land underneath the home for it to be FHA insured.
The FHA 203k loan program allows funds for rehab work on a property. This is a popular option for buyers who want to add their own upgrades after their purchase. It works especially well for single-family homes that require minor cosmetic upgrades such as carpet, kitchens and paint.
Your Credit History
An FHA loan doesn't require perfect credit. Most conventional mortgage lenders look for credit scores above 700. You may qualify for an FHA mortgage with only a 620 score. FHA allows up to two thirty-day late entries on your credit report.
FHA also makes allowances for those who don't have any credit history. In these cases, recent utility bills and proof of payment are acceptable substitutes.
Foreclosures, bankruptcies and short sales won't necessarily disqualify you from an FHA loan. In some cases borrowers can qualify in just a year after a short sale, bankruptcy, or short sale.
You must show that you experienced a financial hardship caused by “extenuating circumstances,” leading to loss of income and/or employment. And you must demonstrate that you've achieved financial stability since then.
FHA mortgage lenders in Your City, Your State will want to see evidence of at least two years of continuing employment with steady or increasing income and very few gaps of unemployment.
FHA typically allows a debt-to-income ratio up to 30 percent. (This is the percentage of your gross monthly income that you pay for your mortgage.) This is more lenient than most conventional loans, which only a 28% ratio.
For example, on a monthly income of $4,500, an FHA loan might allow a monthly mortgage payment up to $1,350. A conventional loan might only allow a maximum payment of $1,260.
If you meet all the eligibility requirements for an FHA loan in Your City, Your State and are ready to begin the application process, you can start gathering your preliminary documents.
Here's a checklist:
- Evidence of residence for the past two years
- 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
FHA requires a down payment of at least 3.5 percent. This is far less than conventional mortgages, which may require 5 percent, 10 percent or even 20 percent down.
On a $300,000 home, your down payment with an FHA mortgage could be as low as $10,500. With a conventional loan it might be $15,000, $30,000, or even $60,000.
Those large down payments make conventional loans unattainable for many would-be buyers. And that makes the FHA option more attractive.
Find Out Today if You're Eligible for an FHA Mortgage Loan in in Your City, Your State