FHA Loan Requirements Can Be Confusing
February 28, 2024
If you are new to FHA loans, their requirements can be confusing at first, at least until you are more familiar with the loan program and its rules. A glance at the FHA loan approval basics typically needs a bit of explanation, as we’ll discover below.
FHA Loan Approval Basics
If you look at finance blogs like NerdWallet, you will find FHA home loan requirements lists. They often look like NerdWallet’s:
But that 500 minimum requires a 10% down payment, higher than the FHA minimum down payment of 3.5%, offered to those with FICO scores at 580 or higher.
Calling 500 the minimum score leads a small number of applicants to believe they might be able to land a lower down payment even with a lower credit score.
This is not true. On top of that, the FHA loan minimum does not reflect lender standards, which may be higher than these minimums. It’s not that finance blogs are being deliberately misleading. It’s just that more clarification is sometimes necessary.
FHA Debt Ratios
The FHA loan debt ratio of 50% or less in the list above typically comes with a caveat, as it does in the NerdWallet article.
Your experience may vary, as on paper, FHA loan rules say 45% is the highest number for FHA standards, but lender requirements may vary. And the higher your debt ratios, the more “compensating factors” may be required to approve the loan.
FHA Income Requirements
The phrase “income requirements” fools some borrowers into thinking they must earn a minimum dollar amount each year to qualify for the FHA loan. But this is not true. FHA loans are not approved based on your income but rather on how much is taken up by debts, including housing.
FHA loan rules for income have more to do with how long you have earned your income and where it is from.
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RELATED VIDEOS:
You're Almost There When You Get Your Loan Approval
Learn About the Mortgage Insurance Premium (MIP)
Pre-approval Starts the Mortgage Process
FHA Loan Approval Basics
If you look at finance blogs like NerdWallet, you will find FHA home loan requirements lists. They often look like NerdWallet’s:
- FHA minimum credit score: 500
- FHA minimum down payment: 3.5%
- FHA debt-to-income ratio: 50% or less
- FHA loan income requirements
But that 500 minimum requires a 10% down payment, higher than the FHA minimum down payment of 3.5%, offered to those with FICO scores at 580 or higher.
Calling 500 the minimum score leads a small number of applicants to believe they might be able to land a lower down payment even with a lower credit score.
This is not true. On top of that, the FHA loan minimum does not reflect lender standards, which may be higher than these minimums. It’s not that finance blogs are being deliberately misleading. It’s just that more clarification is sometimes necessary.
FHA Debt Ratios
The FHA loan debt ratio of 50% or less in the list above typically comes with a caveat, as it does in the NerdWallet article.
Your experience may vary, as on paper, FHA loan rules say 45% is the highest number for FHA standards, but lender requirements may vary. And the higher your debt ratios, the more “compensating factors” may be required to approve the loan.
FHA Income Requirements
The phrase “income requirements” fools some borrowers into thinking they must earn a minimum dollar amount each year to qualify for the FHA loan. But this is not true. FHA loans are not approved based on your income but rather on how much is taken up by debts, including housing.
FHA loan rules for income have more to do with how long you have earned your income and where it is from.
------------------------------
RELATED VIDEOS:
You're Almost There When You Get Your Loan Approval
Learn About the Mortgage Insurance Premium (MIP)
Pre-approval Starts the Mortgage Process
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