Of all home mortgage products, an FHA loan is one of the easiest to qualify for. FHA loans are more flexible than other home loans, require less than 5% down payment, and help many people qualify for mortgages who could not otherwise qualify. The loan requirements involve showing your ability to pay for the FHA mortgage, and having at least the minimum credit score needed for an FHA loan.
General FHA Loan Qualification Requirements
The following is a list of requirements necessary to qualify for an FHA Loan:
- You must have at least two years of steady employment history. While it is preferred that you have been employed by the same employer during that time period, it is not an absolute requirement provided you meet all other qualifications.
- You must have at least two years of steady income, with the amount being consistent or increasing in amount.
- If you have a bankruptcy in your history, it must be at least two years old and you must show a perfect credit history since the bankruptcy was discharged.
- If you have a foreclosure in your history, it must be at least three years ago and you’ve shown perfect history since the foreclosure.
- Your credit score should be at least 620, with no more than 2 notations of 30 days late in the last two years. Sometimes you can qualify with a score below 620 if you have shown two years of on-time credit history and meet all other qualifications.
If you meet all of the above requirements, you are very likely to get approved for an FHA mortgage.
Credit Requirements to Get an FHA Loan
In addition to a FICO score of 620 or above, you will need to show you have sufficient income to repay your mortgage. The evaluators will first review your credit report to see how you have been paying for other debts and loans you’ve had over the last year or two. Before applying for an FHA loan, you should obtain a copy of your credit report to see what is on it. If you find any mistakes on your credit report, take the time to have them corrected before you apply as it will generally improve your chances of approval.
If you find one or two late payments on your credit report, don’t assume you cannot get approved for a mortgage. Often, FHA will review one or two instances of late payments and if you have a sufficient explanation for why it was late, it may be accepted. Sometimes if you lose your job, become injured or ill, or transfer jobs they will consider these acceptable reasons for a late payment or two.
Income Requirements for an FHA Loan
Your gross income must be sufficient to qualify for an FHA Loan. The money you earn before taxes is used as a basis for your income. FHA suggests that you only spend 29% of your income on the mortgage, property taxes, and insurance each month. To calculate this, you multiple your gross monthly income by 29% to find out how much mortgage, taxes and insurance you can afford monthly. Because FHA offers flexible and easier qualification than other types of home loans, they may allow up to 35% of your monthly income to be spent on your house payment and still approve you for the loan – as long as the rest of your debts can still be paid after spending 35% on your housing payment.