FHA home loans are government loans with lenient credit checks; however, there are some guidelines to be able to receive a FHA mortgage. The person trying to qualify will need their debt to income ratio to fall within the FHA requirements before they are approved. FHA loans are approved by computers and humans allowing each loan to be looked at individually where sometimes exceptions can be made. The FHA guidelines are not made to create problems for anyone; in fact they allow everyone to succeed. The guidelines protect the borrower from getting in over their head with a mortgage while still approving many people that may not be approved otherwise. The guidelines also make it possible for banks to feel confident that they will be repaid the FHA loan they grant.
The debt to income ratio displays a person’s debit and income in the form of a fraction (ratio). The top number makes a relationship between the person’s income and their new housing expense including principal, interest, taxes, insurance and any homeowner dues that may apply. The FHA guidelines show that the maximum percentage can be 29. A potential FHA borrower could make $3400 per month and their home expenses could be $1000 per month to make the top ratio number 29 (29% of their income will be used for their home expense). The bottom number displays all of the person’s debt, including new house payment, car payments, other loans, child support, and credit card payments and compares it to their income. The maximum for this percentage is 41. The person making $3400 per month that has total debt of $1400 would have a bottom number of 41. This makes the debt to income ratio 29/41. Exceptions are made with FHA loans when it comes to debt to income when the person puts down more than is required by the government loan, or has enough in other assets to actually pay off the loan.
Other FHA guidelines are that a FHA borrower must hold mortgage insurance on the home, and there are loan maximum amounts that will depend on the county, state and type of home. The borrower must also put down 3.5% as of January 2009. There are not written in stone FHA guidelines for past employment history. It’s actually in the hands of the lender to check and confirm employment and income for the last couple of years. Frequent job changes normally show instability, but exceptions are made when the changes are within the same line of work with increases in pay.
Scotty Sullivan is a copywriter posting FHA refinance articles for lenders. He recommends FHA Home Loan Services for new homebuying and refinancing nationally.
