FHA stands for Federal Housing Administration. FHA offers loans to qualified individuals who are seeking home ownership. An FHA loan differs from a conventional home loan in that the requirements are less stringent. Most FHA loans also require a very low down payment of 5 percent or less of the mortgage balance. Make the process easier by knowing how to qualify before looking for a home or applying for the loan.
Credit
To qualify for an FHA loan, you must have good credit. Credit is based off a number of factors. Your credit report contains all of your past and present credit obligations, including car loans, credit cards and personal loan accounts. The credit report will show a lender how timely you were with payments, how much debt you carry and if you have any delinquencies or negative marks on your report. A FICO score may also be used. The FICO score is a number that is based off of your credit history. This number ranges from 400 to 900, with 900 being the best score you can have. FHA loans require a score of 620 or higher for qualifying. It determines this number based on debt load, payment history, length of credit history, amount of new accounts and delinquent accounts. Both of these factors will determine if you qualify for an FHA loan.
Employment
Employment plays an important factor in qualifying for an FHA loan. You should have a history of steady income and be currently employed. Your income plays an important role in qualifying. This is called your debt-to-income ratio. This figure is determined by taking your income and how much debt you currently owe to determine how much you will be eligible to borrow. FHA guidelines state your new mortgage payment should be 30 percent of your gross income.
Debt
The less you debt you have when applying for an FHA loan the better. Try to pay off or pay down debt, including car loans and credit cards before applying. This will increase your chance of being approved and decrease your debt-to-income ratio. Another requirement from FHA is your debt be paid on time for it least one year before your home loan application. Any late payments will reduce your chance of getting approved.
First-Time Home Buyer
A requirement for qualifying for FHA loans is you must be a first-time home buyer. This means you cannot have a history of a government funded home loans through FHA, Rural Development or the Veterans Administration. Conventional mortgages through a bank or mortgage lender will also disqualify you. One exception would be a land contract or rent-to-own property.
Home and Property
One of the biggest qualifications of getting the FHA home loan is the condition of the home and property. Mobile homes and vacant property are generally not acceptable properties. Homes must also pass an inspection by a qualified FHA inspector. The water source and sewer must be safe in working order. Safety rails and steps should be in good repair. Furnace, hot water heater and the overall structure of the home must pass inspection and be free of damage. The home must not contain lead based paint. A pest inspection, deeming the house free of termites and wood destroying insects is also a requirement of an FHA loan.
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