How to Qualify for an FHA MortgageTo qualify for an FHA home mortgage loan, a borrower must meet certain eligibility requirements. Compared to any other loan program, FHA is the easiest to be eligible for.
Borrowers must have at a minimum:
- Acceptable credit profile and score
- Have at least 3.5% down payment
- Ability to repay the mortgage as set forth by HUD guidelines
- Two-year verifiable employment history
The debt-to-income requirement allows the borrower to have a higher back-end ratio as compared to other loan programs. FHA will go as high as 55% DTI; no other loan program in the market allows this but FHA. AMCAP Mortgage Ltd., an FHA approved lender can go as high as 57% back-end ratio to qualified borrowers.
Contrary to popular belief, credit alone does not guarantee a mortgage loan. Credit, in conjunction with, income and borrower’s assets determine affordability and the total home loan to be extended. The adage that credit, income, and asset constitute a mortgage loan applies here. If a borrower’s income is lacking or the credit is marginal, they must have large enough asset to compensate for the lack of credit, thereof. If they lack in the asset category, they must have an exceptional credit to make up for the asset shortfall. It is what’s referred to in the industry as a “compensating factor.” The borrower’s credit, income, and asset must make up for the other’s lack thereof.
The Federal Housing Administration (FHA) insures the loan made by banks and other private institutions. The first thing that every prospective borrower needs to do is consult with an FHA-approved lender. An FHA Home Loan Specialist will do an analysis of the borrower’s credibility and ability to pay the loan back. It is a simple pre-qualification process. The borrower can take it one step further by opting to be pre-approved. This process will require documentation of income and assets required to move forward with the loan.
FHA Loans and Bankruptcy
Most borrowers who had a previous bankruptcy believe they cannot qualify for FHA loans. That is the distorted information flying around the marketplace. The truth is, a borrower who had a previous bankruptcy can be eligible for an FHA-insured loan. They have to meet certain guidelines about the statute of limitations regarding bankruptcy. However, the rules for Chapter 7 and Chapter 13 filing, respectively, are different.
For a Chapter 7, a borrower can qualify for an FHA loan two (2) years after discharge of the bankruptcy with re-establish credit. For a Chapter 13 protection, those looking to buy can qualify if they have 12 months of payout since the inception of the Chapter 13 filing AND a letter from the trustee allowing the borrower to purchase a home while under the Chapter 13 protection.
AMCAP Mortgage Ltd. can get an automated underwriting approval from either Fannie Mae or Freddie Mac and go over the requirements or additional required documentation with the borrower. This will ensure that the borrower is approved per FHA guidelines.
To learn more about FHA mortgages and FHA loan qualifications, contact our FHA Home Loan Specialists or use the tools on this website.