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What Are the Qualifications for an FHA Mortgage Loan?

by Andrew Latham

Mortgages insured by the Federal Housing Administration provide low- to mid-income households the opportunity to buy a home at competitive interest rates and without having to pay a large down payment. An FHA loan finances up to 96.5 percent of the property's purchase value. However, in order to qualify for an FHA loan, applicants must meet certain requirements.

Borrower Financial Qualifications

An applicant must have a steady employment history or have worked for a minimum of two years with her current employer. She also needs to be a legal resident of the United States and have a valid Social Security number. Applicants must also meet a benchmark debt-to-income ratio of 31 percent. This means that the total cost of the monthly loan payment, mortgage insurance, property taxes, and homeowners insurance, must be 31 percent or less of the borrower's monthly income.

Credit Qualifying Criteria

Although the FHA's credit requirements are more lenient than those of conventional lenders, applicants must prove they have a solid credit history. To qualify, borrowers must have a minimum of two lines of credit history showing a good track record or provide alternative forms of credit, such as rent receipts or a proof of payments made on a personal loan. Borrowers in Chapter 13 bankruptcy, which involves debt repayment, may qualify for an FHA loan if they have successfully made payments for at least one year and meet the lender's minimum credit score requirements.

Mortgage Insurance Premium

FHA insures higher-risk loans by charging a mortgage insurance premium to borrowers who pay a down payment of less than 20 percent of the mortgaged property's value. The mortgage premium has two components: an initial upfront premium of 1.75 percent of the loan amount and monthly insurance payments based on the size of the loan and the loan term of 15 or 30 years. Borrowers can finance the upfront premium by adding it to the loan balance.

Property Requirements and Loan Limits

FHA only insures mortgages on properties that meet their minimum standards. These qualifications apply to the condition of the property and are based on the Department of Housing and Urban Development's Minimum Property Standards guidelines. Properties must be appraised by an FHA-approved appraisers. The loan amount may not exceed area maximum loan limit requirements, which ranged from $271,050 and $729,750 for single-unit homes as of the time of publication. Loan limits vary by area and are based on median home prices.

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