Qualifications for an FHA Loan

Qualifying for an FHA mortgage is much easier than qualifying for a conventional mortgage. Whereas qualifying for a conventional mortgage requires mainstream credit references, such as major credit cards that have been paid on a timely basis, car payments, or other types of standard loans, an FHA mortgage will take into account alternative credit references that a conventional lender would not consider. For example, you may use prompt utility payments or insurance payments, credit from a furniture store, or even school tuition as a credit reference.

You may also qualify for an FHA mortgage if you have a high debt-to-income ratio, and you may qualify even if you have had a bankruptcy that has been discharged as recently as two years prior.

While the closing costs can be financed in with the loan amount, an FHA mortgage does require a three percent down payment, still significantly lower than that required by a conventional mortgage. There are three primary considerations FHA will take when considering guaranteeing your loan; whether you have an adequate down payment (usually three percent) plus enough to pay any closing costs that cannot be financed with the mortgage, whether you have enough income to make your monthly payments, and whether you have satisfactory credit.

Your credit does not need to be perfect to qualify, unlike with a conventional mortgage. However, your credit rating will be a consideration, and it still may be necessary to pay some existing debt or clear up late payments before qualifying. Individuals with poor credit, who may otherwise have to resort to going to a subprime lender and paying very high interest rates, may be able to qualify for an FHA loan and save considerable money in interest.