Who can qualify for an FHA loan? The answer surprises some people, thanks to some misunderstandings about who the FHA single family home loan program is for, and who can use it.
FHA home loans are for any financially qualified borrower. You don’t have to earn a minimum amount of money, and there is no maximum income limit for FHA mortgages.
While it’s true that FHA loans can be less expensive than their conventional mortgage counterparts (in terms of interest rates, no penalties for early payoff, etc.) these loans are not specifically targeted at people who “can’t afford conventional mortgages” or to those with an economic disadvantage.
Hence, there’s no maximum income limit. There’s also no preference given by the FHA for first time home buyers, though a particular lender or financial institution may offer some kind of incentive.
That means any first-time home buyer preference given is done by the lender, not the FHA. The terms and requirements found in the FHA loan handbook for FHA mortgages will not favor one kind of applicant over another in this way.
FICO scores and your credit history will be important factors when you apply. FHA minimum FICO score requirements may not be as high as a lender’s credit score standards, so you will need to ask your loan officer what is required above and beyond the FHA’s FICO score minimums.
According to HUD 4000.1, borrowers with FICO scores at 580 or higher will be technically eligible for maximum financing with a required 3.5% down payment.
Borrowers with FICO scores between 500 and 579 would be technically required to pay 10% down in order to qualify for the FHA mortgage. Those with FICO scores below this range are not qualified for an FHA mortgage.
FICO scores aren’t the only criteria. If you don’t bring 12 months of on-time payments for all financial responsibilities to the FHA loan application process, your chances at loan approval may be negatively affected. It’s strongly recommended that borrowers wait until they have 12 full months of on-time payments before proceeding with loan paperwork.
FHA home loans also depend on a borrower’s debt-to-income ratio. If your lender determines you have an acceptable amount of debt compared to your current income, you’re well on your way to getting qualified for the home loan. That’s why it’s important to work on your debt ratio in the planning stages leading up to your home loan application.