FHA Home Loans

This guide covers the importance of understanding the minimum lending requirements on FHA home loans. It is very important to understand where you stand by fully understanding the minimum FHA loan requirements and the function of HUD and FHA. FHA loans are the most popular loan program for homebuyers.

Every lender can have different FHA home loan requirements. Each lender is allowed to have overlays on FHA loans. Some mortgage companies, like Preferred Mortgage Rates, have zero lender overlays on FHA home loans.

FHA home loans are popular for first-time homebuyers, homebuyers with a recent bankruptcy or are under a Chapter 13 Bankruptcy repayment plan, borrowers with less than perfect credit, those with higher debt-to-income ratios, and borrowers with credit scores down to 500 FICO. Many borrowers of FHA home loans get conflicting reports on FHA home loan requirements from multiple lenders. Mortgage companies do not have a uniform lending standard on FHA loans.

FHA Home Loans Minimum Credit Score Requirements

FHA home loan requirements on credit scores are quite lenient.  Most lenders have overlays when it comes to credit scores. Most lenders require a minimum of a 620 credit score. The Team at FHA Streamline Refinance Lenders are loan officers who are experts in originating and funding FHA loans with no overlays.

Homebuyers can qualify for an FHA loan and get approved if they meet the minimum agency mortgage guidelines.

To qualify for a 3.5% down payment loan FHA loans, credit scores must be at least 580. However, borrowers with a credit score between 500 and 580 can qualify for FHA loans with automated underwriting system approval. This holds true as long as they have a 10% down payment.

FHA Loans With Credit Scores Down To 500 FICO

If your credit score is under 580 and down to a 500 FICO, HUD requires homebuyers to put in a 10% down payment versus a 3.5% down payment. For borrowers who can only afford a 3.5% down payment on a new home purchase, FHA Streamline Refinance Lenders will help you boost your credit scores to 580 FICO.

We are experts in helping borrowers increase their credit scores with several quick fixes. Our licensed or support personnel team can help you repair your credit and improve your scores to qualify for a 3.5% down payment FHA-insured mortgage loan.

Homebuyers who need a loan officer who specializes in originating FHA loans with no lender overlays or has questions on FHA home loan requirements, please get in touch with us at FHA Streamline Refinance Lenders at 800-900-8569 or email us at gcho@gustancho.com. Text us for a faster response. The team at Streamline Refinance Lenders is available seven days a week, on evenings, weekends, and holidays.

How Much Money Do I Need To Buy a House?

For borrowers with under a 580 credit score who do not have the 10% down payment, FHA Streamline Refinance Lenders can help them get to a 580 credit score. There are many down payment assistance loan programs for FHA home loans.

Even though HUD did not change its agency mortgage guidelines, most lenders added tighter lending restrictions on FHA loans and other mortgage programs. The good news is that  FHA Streamline Refinance Lenders has not added any lender overlays before, during, and after the COVID-19 pandemic.

Why FHA Loans Are Popular For First-Time Homebuyers

FHA loans are very popular for first-time homebuyers. This is because of the low down payment requirements and the lenient credit criteria required to qualify. FHA home loans are very popular.

HUD, the parent of FHA, makes homeownership affordable to all hard-working Americans.

One negative factor with FHA home loans is a one-time 1.75% FHA mortgage insurance premium added to the FHA loan balance. Mortgage borrowers are also responsible for paying an annual FHA mortgage insurance premium of .055% of the loan amount for the term of a 30-year fixed-rate mortgage for the life of the FHA loan.

What Is The Role of HUD Versus Lenders on FHA Loans?

We will explain the difference between the agency HUD guidelines and the lender overlays. Borrowers need to understand the minimum agency HUD mortgage guidelines. Lenders love government-backed mortgage loans because if the loan defaults, it is insured, thus minimizing the risk to the lender.

If you meet the agency guidelines but get denied by a lender due to their lender overlays, you can qualify for an FHA loan with a different lender that has no overlays.

FHA Streamline Refinance Lenders is one of the few mortgage companies licensed in multiple states with no lender overlays on FHA loans. Over 80% of our borrowers at FHA Streamline Refinance Lenders could not qualify at other lenders due to their lender overlays.

Property Type Guidelines on FHA Home Loans

There are several types of FHA home loans. All FHA home loans are for owner-occupant homes. HUD does not allow second homes or investment properties to be financed with an FHA loan. Only one to four-unit residentially-zoned owner-occupant primary homes are eligible for FHA loan financing.

Homebuyers can upgrade or downgrade with another home purchase after one year and purchase another home.

If the homeowner wants to keep the exiting home, they can without needing to refinance the original FHA loan. HUD allows borrowers with an FHA loan to keep the loan if they turn the home into a rental property. This holds true as long as they have lived in the home for 12 months since it closed.

What Happens If You Don’t Live In Your FHA Home?

Homebuyers can purchase a two to four-unit multi-family home with a 3.5% down payment home purchase FHA loan with a 580 credit score. The multi-family homebuyer needs to live in one of the units and can rest out the remaining units and collect rental income. HUD, the parent of FHA, requires homebuyers of owner-occupant primary homes with FHA loans to live in the home for at least 12 months before vacating another owner-occupant home.

If you decide to keep the exiting home as a rental and get another owner-occupant home after 12 months, you can keep the exiting home without needing to refinance your original FHA loan. HUD allows you to keep your FHA loan on investment homes if you use it as a primary owner-occupant home for at least 12 months.

Difference Between AUS Versus Manual Underwriting

Many of our FHA mortgage applicants at FHA Streamline Refinance Lenders are manual underwriting files. Manual underwriting guidelines apply. There is not much difference between automated underwriting versus manual underwriting. A human mortgage underwriter will closely review and underwrite manual underwrites.

Debt-to-income ratio caps are normally lower on manual underwrites. Timely payments in the past 24 months are very important in manual underwriting.

Compensating factors are positive factors borrowers have to offset their weaker credit profiles. Strong compensating factors are key for manual underwriting borrowers with higher debt-to-income ratios. The maximum debt-to-income ratio on manual underwriting is 40% front end and 50% back end with two compensating factors.