FHA Loan Requirements
The Federal Housing Administration (FHA) Loan Requirements are derived from the Department of Housing and Urban Development’s (HUD) policy handbook, which is over 1000 pages long. Why so long? After the housing bubble burst in 2008 and the ensuing credit crunch thereafter, the government underwent a process to protect the people and the economy of the US from a repeat of what happened in 2008. As a consumer, you will never deal with HUD directly but instead will need to go through an authorized FHA lender, such as HomeMortageLoans.
The daunting task of sifting through such a document requires patience, but mostly expertise. Luckily, HomeMortageLoans will simplify the data for those home-buyers that are researching FHA loan requirements.
Identification Requirements and Authorizations
HUD has enacted a rigorous process to make sure that borrowers are protected, and that the correct paperwork is obtained for the FHA loan application.
Your approved FHA lender will ask for authorization to verify your Social Security Number (SSN) with the Social Security Administration (SSA). They will also seek your authorization to obtain your tax returns directly from the Internal Revenue Service (IRS).
FHA Loan Documents to Expect to Receive and Sign
Statement of Appraised Value – Otherwise known as HUD-92800.5B, this document must be shared with you before the sales contract is drafted. If it is not, then there must be an amendatory clause included in the sales contract.
Disclosures and Legal Compliance – the Important Notice to Homebuyers form (HUD-92900-B) will be shared with you so you can understand the process, regulations and what is expected of you, HUD, and the lender during the FHA loan process.
Also, expect to receive form HUD-92564-CN, which informs you, the buyer, of the importance of getting a home inspection. This is extremely important so that you protect yourself from unseen repairs that need to be done. You do not want to be stuck with expensive repairs after you have closed on the house, so make sure you include those contingencies in the sales contract.
Other Steps Taken by your FHA Loan Lender
An appraisal will be ordered by your approved FHA lender. Please note that an appraisal is not the same as a home inspection and does not replace the need for one, so make sure you still get a separate home inspection.
An appraisal puts a market value on the home being looked at and is used by HUD and loan underwriters when processing your loan application. Typically, only one appraisal is allowed except under special circumstances.
Borrower Eligibility Requirements
According to HUD, the following are the minimum requirements to apply for an FHA Loan:
- Social Security Number (SSN)
- Valid State ID, or other acceptable identification
- Pay Stubs, W-2 Forms, Tax Returns, Employment Letter, or other income related documents that underwriters can rely on
- Credit eligibility – the absolute minimum credit score to qualify for an FHA loan is 500
- US citizenship is not required to be eligible, however, non-US citizens that are not lawful residents of the US are not eligible for FHA Loan
- Residency requirements – Greencard holders with evidence from the U.S. Citizenship and Immigration Services (USCIS). Non-Greencard holders must provide evidence with an Employment Authorization Document (EAD) issued by USCIS. Residents that are refugees or have asylee status with the USCIS are automatically granted to work in the US, so do not require an EAD. However, proof of refugee and asylum must be available.
Borrower Ineligibility Scenarios
According to HUD, these scenarios will make you ineligible for an FHA loan:
- If you have a past due or delinquent federal non-tax debt (i.e. student loan), that you are ineligible for an FHA loan. However, if you are able to resolve the issue with creditor agency, then the application can proceed.
- If you are past due or delinquent on an FHA-insured Mortgage, then you are ineligible for an FHA loan.
- If you are delinquent with federal tax debt, then you are not eligible for an FHA loan. However, you may be eligible if you have entered into a payment agreement with the federal agency, and have proof from the IRS.
Owner Occupancy Requirements
In order to qualify for an FHA loan, at least one borrower should move in 60 days after the closing date with the intent of staying for at least one year. You can only obtain an FHA loan for one principal residence, except under very special circumstances. Investment properties are not eligible for FHA loans.
FHA Loan Maximum Limits
The FHA publishes a list of areas throughout the country and sets the maximum limits that it is willing to insure. They have divided the country into Low-Cost Areas and High-Cost Areas, and have special limits for Alaska, Hawaii, Guam and the Virgin Islands. Usually, the amounts will cover the mortgage you are seeking, so it is very rare when it doesn’t.
In order to receive the FHA loan, a down-payment of 3.5% is required. Although a higher amount will bring down your monthly payments and interest, this is what makes an FHA loan attractive to so many people. Furthermore, the mortgage term maximum is 30 years.
Mortgage Insurance Premiums
With FHA financing, you are required to pay an Upfront Mortgage Insurance Premium (UMIP), which can be financed through the mortgage (or paid by cash). The UMIP is non-refundable unless under special circumstances. Additionally, there is also an Annual Mortgage Insurance Premium, which is paid monthly.
HUD and FHA requirements are always changing and being updated as time goes on. While this post can give an idea of what to do and expect with an FHA loan, it’s always best to call and sit with a qualified FHA lender, such as HomeMortgageLender. If you are considering an FHA loan now or in the near future, please contact us here. We will make sure to get you the home you want at the rates you deserve.