FHA home owner with dog

Since 1934, millions of Americans have purchased a home thanks to loan funds provided by the Federal Housing Administration (FHA). 

Designed for homeowners with income limitations, this loan could be an option that allows you to achieve your dream of homeownership. 

Learn more about FHA home loan requirements and guidelines as you prepare to buy your dream house.

What Is An FHA Home Loan?

Conventional mortgage loans are geared toward individuals with excellent or good credit and a down payment of at least 20%. First-time homebuyers, individuals who don't qualify for a conventional loan, or individuals with a small down payment may need extra help to buy a home.

That’s where the FHA comes in. 

The government organization insures home loans issued by participating lenders, including Chartway Federal Credit Union. With FHA backing, lenders assume less risk and can loosen loan qualification requirements, reduce the required down payment amount, and offer loans at a lower interest rate. The result is an accessible and affordable home loan for you.

Who Qualifies For An FHA Loan?

While FHA home loans feature more relaxed qualifications than conventional loan programs, you still have to meet certain parameters to apply for a home loan. 

Keep in mind that you may qualify for an FHA loan based on extenuating circumstances even if you don’t meet the normal guidelines.

Your lender will provide additional information on the exact qualifications you need to obtain an FHA loan, but general requirements include:

1. Residency

FHA home loans are designed for primary residences only. You must live in the property you buy, too, rather than rent it out.

2. Employment

To demonstrate that you have the steady, predictable financial resources necessary to repay the loan, provide two years worth of employment and income proof. Acceptable proof includes valid W2 forms, tax returns, and pay stubs.

3. Credit score

You need a credit score of at least 580 to qualify for an FHA loan with a low down payment of 3.5%. If your credit score is between 500 and 580, expect to pay a higher down payment.

4. Credit history

Your credit report should show that you’ve paid your debts on time over the last 12 months. 

You may still qualify for an FHA loan if you made one or two late payments, though how late those payments were can determine your eligibility.

5. Debt ratios

The amount of debt you currently have can affect your eligibility for an FHA loan. 

Ideally, your lender prefers a mortgage-to-debt ratio of 31% to 47% and a debt-to-income ratio of less than 43%. You may qualify for higher debt ratios if you own significant assets or can afford a large down payment.

6. Down payment

As with most conventional mortgage loans, FHA home loans require a lump sum down payment. Instead of the conventional 20% down, you may owe as little as 3.5% of the home’s purchase price.

You can save the down payment yourself before you apply for a home loan, cash in investments, borrow the money from another source, or use a gift to pay this cost. 

Specific rules detail who can give you money for a down payment, so review these requirements carefully before you accept down payment money from a family member, friend, charitable organization, or government agency.

How Do You Apply For An FHA Home Loan?

After determining if you meet the FHA qualifications, you’re ready to apply for a home loan. The application process includes several steps.

1. Choose an FHA-approved lender

Only certain lenders, including Chartway Federal Credit Union, are qualified to issue FHA home loans.

2. Provide the required documentation

Your lender will provide a list of acceptable documents that prove your identity, residency, income, employment, and down payment.

3. Get pre-approved

Ask the lender to determine if you are indeed qualified for an FHA home loan and to calculate how much money you can borrow. These pre-approval details reveal how much money you can borrow and help you choose a house you can afford to buy.

4. Complete all the loan paperwork

Provide accurate and honest answers to all the questions to ensure you gain the maximum amount of money possible and to avoid errors on your application. Your lender will review each portion of the application with you and answer any questions you may have.

Your lender will also order a property appraisal and inspection. This appraisal verifies the property’s value and also ensures the house meets health and safety regulations. If the property does not pass the inspection, your loan could be denied.

Keep in mind that you must cover closing costs and two types of mortgage insurance in addition to the down payment. 

Closing costs cover expenses related to processing and issuing your home loan, such as attorney, property appraisal, and title examination fees. These closing costs generally total between 2% and 5% of your loan amount. 

The Upfront Mortgage Insurance Premium (MIP) totals 1.75% of your new home loan and can be financed. The Monthly MIP is based on the loan’s size and the payout timeline and is added to your monthly loan payment.

5. Sign the closing paperwork

Read each word of the contract and ask the lender for clarification if you don’t understand something. Once you sign the paperwork and it’s processed, your loan application is complete and you can purchase your new home.

Taking The Necessary Steps To Apply For A Home Loan 

Use an FHA home loan to buy a home even if you’re a first-time buyer with income limitations or little to no down payment. 

Chartway Federal Credit Union is ready to assist you throughout the process of applying for a home loan and helping you achieve your dream of homeownership.

Learn more about how to apply for home loans in these resources: