FHA Home Loans: An Informative Guide to This Popular Mortgage Option

Established by the passage of the National Housing Act in 1934, the Federal Housing Administration (FHA) has helped millions of Americans become homeowners and continues to be one of the most popular loan options today. Although commonly called FHA loans, these mortgages are actually issued by approved banks and lenders and only guaranteed by the Federal Housing Administration. The following guide is designed to answer basic questions about the FHA home loan program and help those interested in purchasing a home decide if it is the right option for their needs. 

Is the FHA loan program restricted to first-time homebuyers or low-income applicants? 

The FHA loan program is available to all borrowers who meet the basic requirements set by the Federal Housing Administration. These loans are often a good choice for first-time buyers or those with lower incomes due to their lower down payment requirements, but their availability is not restricted by income or number of homes purchased in the past, be they in the Arbors or elsewhere.

What fees apply when using an FHA mortgage?

Prospective borrowers should know that there are some fees associated with the use of an FHA mortgage, including origination fees, inspection, and appraisal fees, as well as an upfront funding fee of 2.25 percent that can be paid at closing or added to the mortgage balance. 

What are the basic requirements for obtaining an FHA loan? 

FHA loans can be easier to qualify for than some other loan types, however, there are some specific requirements that must be met. Successful applicants must: 

• Have a FICO score of at least 580 (credit scores below 580 may be eligible with a 10 percent down payment).
• Have a down payment of 3.5–10 percent, depending on credit score (this money can be properly sourced, verified gift funds from a family member or other qualifying party).
• Have a steady employment history, usually defined as working for the same employer or within the same field of work for the previous two years.
• Have a valid Social Security number, be a legal resident of the United States, and be of legal age to sign mortgage documents in the state where the loan application is made.
• Meet front-end ratios of typically less than 31 percent of income (the mortgage payment plus other housing-related costs, such as HOA fees, mortgage and homeowner's insurance premiums, and property taxes).
• Meet back-end/total debt-to-income (DTI) ratios of typically less than 43 percent (mortgage debt plus all other debt, including car payments, student loans, credit card debt, etc.).

What requirements must the property meet in order to qualify for an FHA loan? 

To qualify for a standard FHA loan, properties must pass a fairly stringent appraisal/inspection process to both determine market value and ensure that the home meets minimum standards set by the Department of Housing and Urban Development (HUD) for health and safety. 

However, FHA 203k loans can be obtained for homes that need to be renovated, repaired, or even torn down and rebuilt, provided all the requirements for this type of loan are met. These loans can be an excellent financing option to help buyers purchase and renovate distressed or damaged homes that might otherwise remain vacant and uninhabitable.

Can borrowers with past credit problems qualify for an FHA loan? 

In general, FHA loans are more forgiving of past credit issues than other, more stringent loan types. For example, borrowers may be able to qualify for an FHA mortgage in as little as one year after a foreclosure or bankruptcy, depending upon the circumstances involved. However, borrowers with past credit issues must have re-established good credit, per FHA guidelines, in order to qualify for a new FHA mortgage. 

To apply for an FHA loan or get answers to specific questions about the process or requirements, consumers are advised to contact a local, approved FHA lender in their area or ask their real estate professional for a referral.