How To Qualify For An FHA Loan

How to Qualify for a FHA Loan

1. The mortgage industry has changed dramatically in the last few years. In the old days obtaining an FHA loan was easy. Well, obtaining an FHA loan today is still easy.

The first thing you should do to qualify for an FHA loan is have your mortgage application submitted to Fannie Mae Desktop Underwriter or Freddie Mac Loan Prospector. These are the two underwriting decision engines that approve FHA loans.

If your loan is submitted to Fannie Mae an Approve/Eligible means your loan has been approved and if your loan is submitted to Freddie Mac an Accept means your loan has been approved.

Since most FHA loans are sold in the secondary market a Fannie Mae or Freddie Mac approval will be needed. Once your application has been submitted to Fannie or Freddie a loan findings will be generated. Your loan findings will stipulate item per item that are needed to close your loan.

A minimum credit score of 580 is needed for a 3.50% down payment.

FHA allows credit scores below 580 but it requires a larger down payment.

Most lenders require a minimum credit score of 640 for a FHA loan.

2. The mortgage process is very simple. Mortgage loans are submitted electronically to Fannie Mae or Freddie Mac. An Approved Eligible or Accept decision means your application is approved and eligible for sale to Fannie or Freddie.

All FHA loans should be submitted to Fannie or Freddie. Many times a loan officer will pull credit and the loan officer makes the decision that you do not qualify for a loan. The loan officer is not the decision maker - Fannie and Freddie are.

FHA does not have a minimum trade line requirement but most lenders do.

3. A minimum credit score of 580 is required to be approved for a traditional FHA loan. FHA will allow a 3.5% down payment that can be a gift from a family member and up to a 6% seller's concession.

FHA allows a home buyer with credit scores of 580 to put a 3.5% down payment when buying a home. The down payment funds must be the borrower's own funds or a gift and seller's concession is allowed.

If your credit score is below 580 then a 10% down payment will be required and seller's concession is allowed.

4. Generally, a borrower who has made timely payments for the last 12 months serves as a guide and demonstrates their willingness to repay future credit obligations. New FHA Policy changes require minimum FICO score to be 580 for a 96.5% loan-to-valueon a purchase or a 80% loan-to-value cash out refinance. These FICO requirements went into effect in the spring 2010. However, most individual lenders will still require credit scores higher than 640.

A perfect credit score is not needed for an FHA loan approval. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a for a conventional loan. Credit scores down to 500 are accepted if there are compensating factors that offset the credit risk.

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