FHA Home Loans: Getting Qualified

by Karen Lawson
October 26th, 2009

The federal tax credit program for first time home buyers is set to expire November 30, but lawmakers are expected to extend the program “for a limited period of time,” according to Senator Bill Nelson, a Democratic member of the Senate Finance Committee. As the current expiration date draws near, home buyers can also take advantage of the benefits of an FHA loan. The Federal Housing Administration (FHA) insures mortgage loans by reimbursing lenders for losses associated with foreclosure or other mortgage default. Here are basic FHA loan requirements; please keep in mind that individual loans are approved through FHA approved lenders.

FHA Loan Requirements Include Low Down Payment

It’s possible to finance up to 96.5% of the home purchase price (or home value for an FHA refinance) and include some closing costs and the up-front mortgage insurance premium required by FHA. Conventional lenders typically require a minimum of 10% down, and many require 20% down. If you’re short on cash, an FHA loan may help you buy a home or refinance your current home loan. You may qualify for a streamlined FHA refinance if you currently have an FHA home loan.

  • Credit Issues: If you an prove that you’ve made your housing payments on time (with no more than one 30 day late payment) during the 12 months preceding your FHA loan application, you may qualify for an FHA loan even if you’ve had a bankruptcy or foreclosure. A bankruptcy may have occurred no less than two years prior to applying for an FHA loan, and a foreclosure no less than three years prior to applying. When reviewing your loan application, FHA-approved lenders will run credit reports, but you will not be excluded from getting an FHA loan based on credit scores alone.
  • Debt to income ratios: FHA allows borrowers to have a housing payment up to 31% of gross household income, and total debts (including housing) of up to 43% of gross household income. This allows borrowers to have housing payments and other fixed debts (credit cards, auto and student loans, alimony or child support payments) equal to 43% of their monthly income before deductions.
  • Non-occupant co-borrower: Although FHA requires at least one borrower to occupy the mortgaged property as his or her primary residence, FHA permits non-resident co-borrowers. This is handy for buyers who need their parents or other family members to co-sign for their mortgage.

FHA refinance loans also provide a safe home financing alternative for homeowners who cannot qualify for refinancing under convnetional mortgage lending guidelines.

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