Understanding 2019 Requirements for FHA Loans
When a borrower is considering an application for an FHA loan, it is important to understand the requirements and how they affect borrowers. Here are the requirements for 2019 as they pertain to credit scores, down payments, limitations, and debt-to-income ratios.
FHA Loan General Requirements
- A minimum credit score of 500
- Down payment corresponding to credit score requirements
- The home must pass minimum safety standard assessments
- The house must be used as the primary dwelling for the applicant
These are not by far the entire list of FHA loan requirements. Those can be found in a handbook published yearly. Reading through the whole guide might take you all year to get through with the jargon and in-depth explanations found within it. You don’t have to go to all that trouble though. You can find the summarized version of FHA guidelines right here.
Before starting with the guidelines and restrictions, let’s take a moment to debunk a commonly believed myth about FHA mortgage loans. FHA insures the loan applicants will make the payments. Sometimes this involves private mortgage insurance.
Read More: Overview of FHA Loans
FHA Mortgage Loans Are Not Just for First Time Homebuyers!
For many, when they think of FHA mortgage loans, they think, “Oh, that is that loan for first-time home buyers, right?” Wrong! In truth, FHA loans are for first-time buyers, established buyers, and even borrowers looking to refinance, as long as they meet the FHA requirements of eligibility that follow.
FHA and Minimum Down Payments
Minimum down payments for FHA loans will be dependent on your credit score. In general, if your credit score is in the range of 580 or above, you can expect a down payment of 3.5% on your home loan. On the other hand, if you have a score between 500 and 579, you can expect a down payment of approximately 10%. Depending on your credit score, an FHA loan program may give you a smaller down payment than conventional mortgage lenders but not always.
Read More: FHA Down Payment Details
FHA and Debt-to-Income Requirements
One factor that plays into any lender’s decision to help you finance to buy your home is your debt-to-income ratio (DTI). Your DTI is the percentage of your income before taxes, which is used to pay your current debt payments. These debt payments include mortgages, auto loans, credit cards, child support, and any other payments made.
FHA requirements concerning DTI is that the borrower has a ratio of 50% or less to be eligible. Borrowers should keep in mind that this percentage may vary depending on the creditworthiness and other circumstances of the borrower.
FHA and Income Requirements
Unlike conventional lenders, there is no set minimum or maximum income levels to qualify for an FHA mortgage loan. There are, however, a few eligibility requirements that you must meet as follows.
- The borrower must have a minimum of two established credit accounts. (i.e., credit card and automobile loan)
- The borrow must not have a past due to federal debt. This includes past FHA mortgages or tax-related accounts.
- The borrower must have written verification of any monetary gifts that will be applied to the loan. The written confirmation must contain a signature and date by the gifting party.
FHA and Documentation Requirements
When applying for an FHA mortgage loan, you will need to have specific documentation. Some of the required documents include valid social security number, original pay stubs or tax returns, and any other case-specific documentation.
FHA and Property Guidelines
With FHA mortgage loans, it is not only the borrower that will need to meet specific requirements, but also the property itself. Some of these property requirements include dwelling type, pass safety standards, pass inspection, and meet the value guidelines.
So what does this mean for the borrower? The home must be intended for use as the primary dwelling. This means that the home must be where the borrower is physically going to live within a set time after the closing date. The property cannot be one that is intended for resale (flipping) or a vacation home.
The home must also pass a stringent inspection before acceptance. This inspection will check to ensure that it meets all safety and construction standard requirements, and falls within the guidelines of the state zoning requirements.
Another requirement to keep in mind is that the borrower must take ownership of the property in their name or in that of a living trust.
FHA and Loan Limits
Along with the requirements for the borrower, there are also limit requirements that must be adhered to as well. The FHA loan limits vary according to county restrictions. However, the general guidelines for 2019 in regards to FHA loan limits, are approximately $314,827 to $726,525 based on low-income areas or high-cost areas, respectively. Again, these limits may vary depending on the county and property type. Don’t forget about closing costs. Your interest rate, the loan amount, your credit history, and loan duration (such as a 15 years loan) can greatly impact not only your payment but your qualifications as well.
FHA and Lender Requirements
When looking to apply for an FHA loan, it is essential to understand that while you may meet all of the eligibility requirements provided in the FHA guidelines, lenders too have conditions that they may impose. These lender-specific requirements may include higher credit score or lower DTI ratios. With this in mind, it is always a good idea to compare lending institutions to find the lender that fits your financial situation the best. Always make sure to use FHA approved lenders.
What Happens When You Don’t Meet FHA Requirements?
There are certain instances when a borrower’s situation does not fit precisely with the specifics of the FHA’s required standards. In these situations, there is still hope. This does not mean that the borrow is just out of luck; it merely means that the lender must review the loan a bit more in-depth before giving approval or denial.