FHA Loans Explained
Applying for an FHA mortgage isn’t like the process for a conventional loan, mostly because FHA loan guidelines are more flexible. FHA loan applications can be more forgiving of past credit mistakes and you’ll pay less out of pocket for down payments. But who qualifies for an FHA home loan, and what does it take to become approved for an FHA mortgage?
If you want to borrow money to buy a single-family home or a multiple-unit property you intend to live in, an FHA mortgage is right for you. But if you need to purchase a commercial property or any building you don’t intend to occupy as your primary residence, you can’t apply for an FHA home loan.
It’s also important to know that properties that are otherwise eligible for an FHA loan don’t qualify if the seller hasn’t owned them long enough. FHA guidelines require the seller to own the property for more than 90 days.
As with conventional loans, to qualify for an FHA loan you’ll need to be able to afford the payments. The FHA considers your loan affordable if the house payments do not exceed 29% of your gross monthly income.
As for credit ratings, guidelines for FHA loan approval are more lenient, but there are a few guidelines you should know about. Have you had trouble with credit card debts and other payments? A few past problems aren’t enough to spoil your chances to get an FHA home mortgage. FHA guidelines are stricter when it comes to missing payments on previous home loans, bankruptcy and related issues. Take note of the following:
- Any previous foreclosure action against you must be three years old or more
- You must have 36 months of good credit after the foreclosure action against you
- You must have 36 months of stable income
- Any bankruptcy action taken by you must be 24 months or older
- You must have a record of paying your bills 24 months after the bankruptcy proceedings
When you apply for an FHA home loan you’ll be asked about your payment history, income and your ability to make a down payment. Even if your “stated income” looks good on the application, you must verify that amount. You’ll be asked to provide income tax records, pay stubs and other documents. You may also be required to verify proof of military service if you’ve served, or college attendance.
Once approved for an FHA home mortgage, you’ll have to provide a 3.5% down payment, and there are also closing costs. If you worry about being able to afford the down payment plus closing costs, contact your loan officer before you start the FHA mortgage process. Ask what options you have and how you can prepare yourself financially for the costs associated with your FHA loan.
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