Who Can Qualify for an FHA Loan?

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FHA loans are federally backed home loans that are meant to encourage home ownership. They are really accessible because they are federally backed, so lenders do not mind taking on the risk. The FHA has guidelines on who may qualify for an FHA loan, but you should be aware that lenders often add their own standards. The FHA loan qualifications criteria are as follows:

  • There are no income limits, you merely have to show that you have enough income to pay off the loan. FHA loans are clearly beneficial to low income home buyers, but that does not disqualify high income earners. You will be required to show pay stubs and tax returns as proof of an income.

  • Your debt to income ratio should be within reason. If the mortgage will take up 31% of your income and your total loans (mortgage, student, credit, car etc loans) would take up 41% of your income, then you are in a good position. Your debt to income ration can be higher and you would still qualify although you would be under more stringent conditions.

  • If your credit score is as low as 580 you can still qualify for the 3.5% down payment FHA loan. If your credit score is lower than 580 and you are willing to make a larger down payment than you may still qualify for an FHA loan.

  • You must be out of bankruptcy for at least a year to qualify for an FHA loan. You may be required to show that the bankruptcy was due to extenuating circumstances e.g. a health emergency that drained your income. You must show that you have since gained control of your finances.

  • You must be three years out of foreclosure, and you may have to prove that you have since gained control of your finances.

  • You must have a credit history. So, you will need at least two lines of credit open such as student loan, credit card, or a car loan.

  • How much you can borrow is largely based on the house prices of the area. Each area has a limit and the figure can be found on the HUD website.

It is important to understand that each lender may add their own criteria. So if one turns you down, another may approve you. If you shop around, you may also get a better deal.

If you'd like to learn more or apply for an FHA loan, fill out the form below and a home.loans specialist will assist you.