FHA Loan Requirements and Underwriting Standards
FHA loans are easier to get than conventional mortgages because it recognizes that first time buyers may not be able to come up with a full 20% down payment, and may need to borrow some of the down payment from family or another organization.
FHA loans are insured, and therefore include mortgage insurance premiums to avoid using taxpayer funds. However, even with more lax lending standards, you must still meet FHA loan requirements and underwriting standards in order to qualify for a loan.
FHA loans are mostly designed for first time buyers; however the FHASecure program is available for homeowners with adjustable-rate mortgages who are at risk of foreclosure. All borrowers, whether they're receiving a new loan or refinancing an old one, must meet the following basic FHA loan criteria:
* Have a valid Social Security Number (SSN)
* Be a legal resident of the United States
* Be of legal age to sign a mortgage in your state.
As with all lenders, you must meet additional requirements regarding your credit history, income, and debt-to-income ratio. The FHA will also consider your down payment plus additional cash for closing.
Unlike most other lenders, the FHA doesn't require you to have a traditional credit history in order to consider your reliability. Instead, lenders can build a credit history based on utility payments, rental payments, auto insurance payments, and other payments that don't appear in credit files. They will also consider whether you've had a bankruptcy in the last two years. You should have a good history of on-time payments in the last two years and be current on all payments. If you're in default on any student loans, you will not qualify for an FHA loan.
Regardless of the FHA loan limit for your area, the loan amount you qualify for depends on your income and ability to pay. Under FHA standards, you should spend no more than 31% of your monthly income on your mortgage, property tax, and insurance. In addition, you should spend no more than 43% of your income on total debt payments, including student loans, car loans, and credit card debt.
FHA loans require a minimum of 3% cash-on-hand for the down payment and closing costs. The following maximum loan-to-value ratios also apply to either the appraised value or sales price (whichever is lower):
States with Average Closings Costs At or Below 2.1 Percent of Sales Price
* 98.75 percent: For properties with appraised values equal to or less than $50,000.
* 97.65 percent: For properties with appraised values in excess of $50,000 up to $125,000
· 97.15 percent: For properties with appraised values in excess of $125,000.
States with Average Closings Costs Above 2.1 Percent of Sales Price
* 98.75 percent: For properties with appraised values equal to or less than $50,000
· 97.75 percent: For properties with appraised values in excess of $50,000
FHA underwriting standards determine the total loan you can receive. The home you use as collateral must be worth at least 3% more than the loan. A 20% down payment won't increase the available loan funds, but it will enable you to buy a more expensive home. It might also make it easier to qualify for a conventional mortgage that doesn't require FHA's mortgage insurance premium.
FHA loan standards are much more generous than conventional loan standards, but you must still be able to meet their basic requirements and underwriting standards in order to qualify. Use the FHA's loan estimate tool to determine how much home you can afford.
For more articles on FHA loans, visit: http://www.bills.com/fha-loan-requirements/
FHA loans are insured, and therefore include mortgage insurance premiums to avoid using taxpayer funds. However, even with more lax lending standards, you must still meet FHA loan requirements and underwriting standards in order to qualify for a loan.
Basic FHA Loan Criteria
FHA loans are mostly designed for first time buyers; however the FHASecure program is available for homeowners with adjustable-rate mortgages who are at risk of foreclosure. All borrowers, whether they're receiving a new loan or refinancing an old one, must meet the following basic FHA loan criteria:
* Have a valid Social Security Number (SSN)
* Be a legal resident of the United States
* Be of legal age to sign a mortgage in your state.
FHA Underwriting Standards
As with all lenders, you must meet additional requirements regarding your credit history, income, and debt-to-income ratio. The FHA will also consider your down payment plus additional cash for closing.
Credit History
Unlike most other lenders, the FHA doesn't require you to have a traditional credit history in order to consider your reliability. Instead, lenders can build a credit history based on utility payments, rental payments, auto insurance payments, and other payments that don't appear in credit files. They will also consider whether you've had a bankruptcy in the last two years. You should have a good history of on-time payments in the last two years and be current on all payments. If you're in default on any student loans, you will not qualify for an FHA loan.
Income and Ability to Pay
Regardless of the FHA loan limit for your area, the loan amount you qualify for depends on your income and ability to pay. Under FHA standards, you should spend no more than 31% of your monthly income on your mortgage, property tax, and insurance. In addition, you should spend no more than 43% of your income on total debt payments, including student loans, car loans, and credit card debt.
Down Payment and Cash on Hand
FHA loans require a minimum of 3% cash-on-hand for the down payment and closing costs. The following maximum loan-to-value ratios also apply to either the appraised value or sales price (whichever is lower):
States with Average Closings Costs At or Below 2.1 Percent of Sales Price
* 98.75 percent: For properties with appraised values equal to or less than $50,000.
* 97.65 percent: For properties with appraised values in excess of $50,000 up to $125,000
· 97.15 percent: For properties with appraised values in excess of $125,000.
States with Average Closings Costs Above 2.1 Percent of Sales Price
* 98.75 percent: For properties with appraised values equal to or less than $50,000
· 97.75 percent: For properties with appraised values in excess of $50,000
Collateral
FHA underwriting standards determine the total loan you can receive. The home you use as collateral must be worth at least 3% more than the loan. A 20% down payment won't increase the available loan funds, but it will enable you to buy a more expensive home. It might also make it easier to qualify for a conventional mortgage that doesn't require FHA's mortgage insurance premium.
FHA loan standards are much more generous than conventional loan standards, but you must still be able to meet their basic requirements and underwriting standards in order to qualify. Use the FHA's loan estimate tool to determine how much home you can afford.
For more articles on FHA loans, visit: http://www.bills.com/fha-loan-requirements/
