A Quick Guide to FHA Loan Requirements
Mortgage loans from the Federal Housing Agency (FHA) can be a great deal for many Americans. Historically, many considered this loan program a good option only for people with less than perfect credit and/or low income, but the fact is that anyone can apply for an FHA insured loan.
However, since it is a government program, the process can require a little more documentation than a standard conventional loan. Is it worth it? It depends on your circumstances. For many, the benefits of an FHA loan outweigh the extra steps needed to obtain the loan.
FHA Documentation Requirements
If you do decide that an FHA loan is the mortgage for you, you should be prepared to provide the following information to your lender:
- Physical addresses for at least the past two years
- Social Security Numbers for all applicants
- Names and location of employer(s) (at least two years)
- Gross monthly salary
- Current check stubs and W-2 forms (past two years)
- For self-employed individuals, personal tax returns (past two years), current income statement and business balance sheet
- Checking and savings account balances
- Outstanding loan information
- Information on any other real estate you own
- Estimated value of personal property
Credit and Income Requirements
You’ll also need to provide a credit report, but don’t let that discourage you. FHA loans are particularly helpful for borrowers with less than perfect credit. FHA loans generally require a credit score of 620 though some lenders may accept credit scores as low as 580 with a 3.5 percent down payment. If you can raise a down payment of 10% or more, you may qualify with an even lower credit score.
Another financial factor that’s taken into account on any home mortgage is the borrower's debt to income ratio. This represents the percentage of monthly income that is spent on paying other outstanding obligations like home mortgages, student loans, car loans, other real estate, personal loans, credit cards, and child support. With an FHA home loan, a borrower’s total monthly debt load should generally account for no more than 43% of his or her monthly income. There are exceptions to these guidelines so be sure to talk to your lender if you are concerned you may not qualify based on your current debt to income ratio.
The FHA has a standard known as the Minimum Property Requirements (MPR) that all FHA-insured mortgage properties must meet in order to qualify for an FHA insured loan. Borrowers need to obtain an appraisal by a HUD-approved home appraiser to show that a property meets MPR. This appraiser will determine the current market value of the property and inspect the property to insure it meets HUD's MPR.
In addition, the FHA does have limits on the maximum amount of money you can borrow for a home. FHA loan limits are updated each year and vary by region.
Let Lincoln Savings Bank help you find your next home with confidence, knowing you are ready to buy when the right home appears. You can begin our online mortgage process in just a few minutes by completing the short mortgage form at the FHA Loan Launchpad.
If you prefer personal assistance rather than online help, you can contact us at one of our many Iowa locations, and one of our mortgage experts will be happy to answer your questions.
Lincoln Savings Bank, Member FDIC and Equal Housing Lender