FHA loan requirements for 2021

FHA loan requirements

  • Credit score of at least 500.

  • Debt-to-income ratio of 50% or less.

  • 3.5% down payment if your credit score is 580 or higher.

  • 10% down payment if your credit score is 500-579.

  • The home must be your primary residence and must meet the FHA minimum property requirements.

The complete list of FHA loan The requirements are published in a manual of more than 1,000 pages. You would need to drink at least a 20-ounce cup of coffee with a turbo shot just to stay awake for the first 20 pages. Good news: you don’t have to do that, because NerdWallet has summarized the Federal Housing Administration’s guidelines for you below.

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If you can’t make your mortgage payment in full or are concerned that you won’t be able to make your payments soon, contact your mortgage servicer immediately.

But first, let’s address a common misconception about who can get an FHA home loan.

Are FHA loans for first-time homebuyers only?

No. Contrary to popular belief, FHA loans are not just for first-time home buyers. FHA loans typically have more relaxed qualification requirements than conventional mortgages. This makes FHA loans attractive to borrowers with lower credit scores or smaller down payments, common challenges for first-time home buyers.

But anyone, even a regular buyer or homeowner looking refinance a mortgage, they can use an FHA loan as long as they meet the eligibility requirements below.

FHA Down Payment: 3.5% minimum

With the FHA, the minimum down payment depends on your credit score. With a credit score of 580 or higher, the minimum down payment is 3.5%. With a score of 500 to 579, the minimum down payment is 10%.

FHA Debt-to-Income Guidelines

Lenders pay attention to your debt-to-income ratio, regardless of the type of mortgage you get. The debt-to-income ratio, known as DTI, measures the percentage of your income before taxes that you spend on monthly debt payments, including mortgages, credit cards, student loans, and other obligations. You can use a debt-to-income ratio calculator to find out where you are.

The FHA requires a debt-to-income ratio of 50% or less, according to Brian Sullivan, a public affairs specialist with the US Department of Housing and Urban Development, who heads the FHA. DTI requirements may vary based on your credit score and other factors.

FHA loan income requirements

There is no minimum or maximum wage you can earn that qualifies you or prevents you from obtaining an FHA-insured mortgage. However, you must:

  • Have at least two established credit accounts. For example, a credit card and a car loan.

  • Have no federal tax or other delinquent debts or judgments, or debts associated with past FHA-insured mortgages.

  • Count the cash gifts that help with the down payment. These gifts must be verified in writing, signed and dated by the donor.

FHA documentation

Here is some of the documentation you will need when applying for an FHA home loan:

  • You must show proof of a social security number.

  • Provide original pay stubs, W-2 forms, or valid tax returns, as needed.

Of course, there are other stipulations, but an FHA approved lender will walk you through the details if other requirements apply.

FHA property requirements

In addition to the borrower’s qualifications, the property itself must meet certain requirements before it can qualify for an FHA mortgage.

  • The loan must be for a primary residence and at least one borrower must occupy the property within 60 days of closing.

  • It cannot be an investment property.

  • A FHA appraisal, which assesses the home’s housing and ensures that it meets the FHA’s minimum ownership standards.

  • The property cannot be an investment, which means that you cannot buy a home within 90 days of the previous sale.

  • You must take title to the property in your own name or in the name of a living trust at the time of liquidation.

FHA loan limits

The property must meet FHA loan limits, which vary by county. In 2021, that’s generally $ 356,362 for single-family homes in low-cost areas and $ 822,375 in high-cost areas.

FHA Lenders Also Have Requirements

The FHA insures the loan, but a lender makes the final decision to deliver the money and can determine what specific qualifications it requires.

Those requirements may include a higher credit score or a better debt-to-income ratio. It is a good reason to look for more than one lender.

What if you don’t meet the FHA requirements?

“The FHA’s standard underwriting criteria are built into a ‘scorecard’ that considers many factors related to income and debt,” says Sullivan. “Under certain conditions, particularly when a borrower does not meet our general scorecard requirements, a manual underwriting is required.”

That means if your situation doesn’t perfectly fit all of the guidelines, a lender may still consider your loan application, but will have to review it more closely before approving or denying it.

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