FHA Loan Requirements : FHA Loan Qualifications

FHA Loan Requirements

FHA loans are the most sought-after federally insured loans because of the flexible underwriting guidelines. These loans are ideal for first time homebuyers and the low to moderate-income families. Read in-depth information regarding FHA loan requirements, FHA loan qualifications and the FHA loan process to help you purchase mortgage quickly and easily from a reputable FHA mortgage lender.

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Read about FHA Loan Requirement and the FHA Loan Qualification Criterion

According to the Federal guidelines, a borrower must meet the FHA loan requirement and the FHA loan qualification criteria in order to be able to apply for a FHA mortgage. The general pointers are as follows:

• Credit and Common credit issues - The borrower's credit history plays an important role in being approved for the loan. Common credit issues are debt, late payments, bankruptcy, errors, repossessions, accounts turned over to a collection agency, too much available credit, absence of credit, etc.


• Income - The borrower must have sufficient and adequate income to cover the repayment of the mortgage


• Compensating factors - Some compensating factors may be taken into account for loan approval. Compensating factors are an energy efficient dwelling, limited use of credit, larger than minimum down payment, less than 10% increase from old rent / house payment to the new housing expense


• Loan ratios - The monthly housing ratio also determines if the loan is approved


• Closing Funds - Acceptable sources of funds are: earnest money deposit, savings and checking accounts, gift funds, sales proceeds, cash saved at home, rent credit.

Learn the FHA Loan Process

The common steps in FHA loan process are given below. However, the FHA loan process may vary according to the financial service provider whom you approach. The following items are necessary before applying for a federal housing loan program:

• List of previous residences


• Bank accounts


• Outstanding debt


• Salaries and other pertinent information


• A dedicated loan officer will assist in the loan application process


• After the information is received, a processor receives the submission and asks for any outstanding items


• The loan is submitted to an electronic underwriting system where a trained underwriter reviews the data and makes the decision to approve or disapprove your loan


• If the housing loan is approved, the closer gathers everything needed for the next step, that is, submitting a closing package to an escrow or title company


• A closing date will then be scheduled for the loan closing


• Once the federal administration loan documents are signed, the loan closes and the funds go to the seller


• Usually, one can apply online or by phone or in person

Why are FHA loans preferred to Conventional Loans? - FHA vs. Conventional Loan

The term conventional loan includes loans under the current Fannie Mae and the Freddie Mac lending limits. These loans are known by different names in the industry. A housing administration loan is usually associated with purchase money transactions. While it is the most common use, loan refinancing of federal housing administration is equally popular. The credit qualifying criteria for a FHA loan is not as strict as a conventional loan. The down payment and the equity requirements are also less. Comparing the purchase money of the conventional FHA loan against a conventional loan, the federal housing loan will have the least amount of money required to close and lower the payments. Thus the federal administration loan allows those with adverse credit to get a mortgage.

The FHA has a best system in which it does not lend money but guarantees a loan so that the borrowers do not have to undergo the financial risk. The loans on federal housing administration cannot exceed the statutory limit. The FHA approaches a person's credit history with reasonable credit underwriting, as opposed to conventional loan financing that relies heavily on credit scoring. The conventional FHA loan has some allowable and non-allowable closing costs that can be levied on the borrower. This saves the homebuyer a substantial amount of money. Conventional loan financing has no such mandates and the borrowers may be charged indiscriminately. The FHA allows the funds to be gifted while conventional financing does not. Though the federal administration charges an annual mortgage insurance premium, it is generally half of what is charged in low down payment conventional mortgage loans.