FHA Loan 101

In a general sense FHA loans are easier to qualify for than a conventional loan with a similar down payment. Credit requirements are less stringent and underwriting guidelines are more flexible.


Here are the basic FHA Rules and Requirements for Borrowers:

 Credit should be reasonably good. This means the applicant should have at least a 620 credit score and the credit report should show a minimum of 3 trade lines with at least a 12 month history
 Bankruptcy’s should be at least 2 years since discharge and the applicant needs to have re-established credit since the BK and paid their bills on time
 Foreclosure’s should be at least 3 years in the past with clean payment histories since
 Employment must be stable. Typically this means a 2 year employment history in same line of work
 Income must be stable as well. Bonus, overtime or part-time employment income can only be used if it has a 2 year history
 Down payment and funds for closing costs can be a gift from a relative
 Total mortgage payment, including taxes and insurance, should be no more than 33% of buyer’s gross monthly income. This is called the Debt to Income ratio

These are the Requirements for the Transaction:

 Minimum down payment is 3.5% of the purchase price
 Seller can pay up to 6% of sales price towards buyers closing costs and prepaid items, but the seller cannot make the buyers down payment
 There is no separate FHA inspection of the property. Just a standard appraisal inspection and all utilities and water must be on and functioning at the time of the appraisal
 Sellers must be in title for a minimum of 90 days prior to sales contract date! If the seller has owned the house between 90 to 180 days a second appraisal may be required
 Borrower pays FHA Upfront Mortgage Insurance Premium (UFMIP) of 2.25% of loan amount
 Borrower pays Monthly Mortgage Insurance (MMI) of .55% of loan amount (this is annual amount)