An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate income borrowers.
What is an FHA loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, or FHA. Popular with first-time homebuyers, FHA home loans require lower minimum credit scores and down payments than many conventional loans.
You can qualify for an FHA loan with a credit score as low as 500 with 10 percent down. To get FHA’s maximum financing of 97.5 percent, you need a credit score of 580 or higher and 3.5 percent down. FHA borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
FHA loan requirements in 2019
To be eligible for an FHA loan, borrowers must meet the following lending guidelines:
• Down payment of at least 3.5% of the purchase price. The down payment can come from a verified gift from a relative or government program.
• FICO score of 500-579 with 10% down or a FICO score of 580 or higher with 3.5% down.
• Steady employment history or 2 years work experience with the same employer.
• Income is verifiable through pay stubs, federal tax returns, and bank statements.
• Loan is used for a primary residence.
• Property is appraised by an FHA-approved appraiser and meets HUD property guidelines.
• Your front-end debt ratio (monthly debt payments, excluding a mortgage) should not exceed 31% of your gross monthly income. Lenders may allow a ratio up to 40% in some cases.
• Your back-end debt ratio (mortgage, plus all monthly debt payments) should not exceed 43% of your gross monthly income. Lenders may allow a ratio up to 50% in some cases.
• If you experienced a bankruptcy, you must wait 2 years to apply. If you experienced a foreclosure, you must wait 3 years to apply. In the interim, you must also have re-established a positive credit history. Lenders may make exceptions on waiting periods for borrowers with extenuating circumstances.
