FHA mortgage loan requirements

It is understandable why many people intentionally shy away from loans almost immediately when they can. Loans are scary when approached with unreadiness and a stunning lack of research and foresight. Considering the many loan types and programs there are, which one is the best anyway? The economy is a subject that calls for polarising debates. But whatever your stance is, it is a known fact that purchasing property requires a massive deal of money.

For starters, there are commercial loans and there are loans under the Federal Housing Administration. FHA loans are perceived to be generally kinder to more people because of how non-stringent their requirements and standards are.

If your concern really is just requirements, a quick google search will tell you that you will need the following to apply for a government-insured loan:

  • Address to your place of residence (past two years)
  • Social Security numbers
  • Names and location of your employers (past two years)
  • Gross monthly salary at your current job(s)
  • Pertinent information for all checking and savings accounts
  • Pertinent information for all open loans
  • Complete information for other real estate you own
  • Approximate value of all personal property
  • Certificate of Eligibility and DD-214 (for veterans only)
  • Current check stubs and your W-2 forms (past two years)
  • Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals

(source: FHA.com)

At the same time, if your main question is how to qualify for an FHA loan, you should already know by now that it isn’t just based off of the documents you’re able to submit. There are numerous factors banks and lenders will consider before granting you a home loan.

After all, eligibility isn’t determined by your completeness of documents. It is determined by your records. Factors such as FICO credit scores, down payment availability, the presence of existing loans, and one’s salary are things that help ascertain if one is indeed eligible for an FHA loan.  

For beginners, credit scores by FICO range from 300 to 850, with 500 being the base for an FHA consideration. Borrowers who reach a rating of 580 have the opportunity to let out a minimal 3.5% down payment should they be approved. Others who do not reach the aforementioned credit requirement may still be given the FHA loan green light but will have to put in a 10% down payment.

Still, this is already very generous considering that conventional and many non-confirming loans ask for a 5% to 20% upfront deposit with a 620 to 640 credit rating. Should your FICO score be below that, your chances for approval become very slim. Exactly why plenty of people prefer an FHA loan versus a commercial one.

Another consideration to think of is one’s income. Although how much you earn contributes to the amount that is lent to you if ever approved, it is not based solely on how big of a figure you receive from your employer. How much a borrower is left with after paying for mortgage fees and other utility bills is a big factor financial institutions and lenders look at.

To make sure you have enough money to sustain your everyday needs while still paying off debt on a regular basis, lenders put a premium on your spending habits and how steady your cash flow is.

This is also exactly why existing loans may play a big part in whether or not you are given a loan grant. These lenders make sure that no one is being put to risk by making sure all parties are safe and all bases are covered.

If you have solid savings and a down payment ready for the taking, this makes things a lot smoother. What people fail to remember is that loans aren’t just about how much banks are able to give you. They’re also about how much cash you’re able to fork out on the onset of initial transactions.

Things like closing costs, attorney fees, land titles, and other similar out-of-pocket-expenses need a lot of money and your preparedness in this aspect definitely helps determine whether or not you are financially ready for a loan.

Go over all these FHA nuggets and see for yourself whether you are eligible or not.

Good luck!