FHA Loan Guidelines

The qualification standards for an FHA loan tend to be more relaxed than a conventional loan. There is no minimum income required to qualify for an FHA loan, however it does require that you have been steadily employed for at least 2 years. Also, you must have a proven track record of consistent, on time, bill payment.

The FHA has different qualifying ratios then conventional lenders. Generally, for conventional lenders no more than 28% of your gross monthly income (income before taxes) should be spent on housing expenses such as mortgage payment, hazard insurance, real estate taxes, private mortgage insurance, etc. Also your total monthly housing expenses plus your long term debts combined should not be greater than 36% of your gross monthly income. Although some lenders are more flexible than others, the FHA has much more liberal qualifying ratios.

Under the FHA lending guidelines, no more than 31% of your gross monthly income should be spent on housing expenses. Also, your total monthly housing expenses plus long term debt should not be greater than 43% of your gross monthly income. The more liberal standards, however, are subject to a maximum loan amount. The maximum loan amount can vary based on location, so you should check the FHA website for more details.

As of 2007, FHA loans require mutual mortgage insurance or MMI. The MMI, plays a similar role to private mortgage insurance or PMI, that is, it protects the lender from potential borrower default. The MMI generally requires premium of 1.5% upfront and 0.05% of the loan amount annually. The MMI doesn't exist forever, when the remaining balance on the loan is equal to 78% the insurance is cancelled assuming the payments have been made in a timely fashion.

Qualifying for a FHA insured loan may be easier than a conventional loan. However, you should also keep in mind that if you over extend yourself, your house will still be foreclosed on. Be sure that you can afford the house you are considering to buy, before making a commitment.

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