Requirements:

• Basics – To get an FHA mortgage loan, you’ve got to have a valid social security number, be a legal resident of the United States, and be of legal age to sign on a mortgage (this age varies from state to state).

• Employment – Ideally, you’ll be able to show FHA that you’ve maintained steady employment for the last two years. This doesn't mean you had to stay at the same employer the whole time, just that you didn't have a "gap" in employment. FHA is flexible. There legitimate reasons for having less than a 2 year employment history.

• Income – There are no minimum income requirements for an FHA loan. you just need to show consistent income over the past 2 years. What constitutes income? Full-time wages from your employer, part-time pay, overtime pay, bonuses, seasonal pay, pension, child support paid to you, alimony paid to you, even rent paid by family members to you. Government-based sources of income can also be included, such as social security payments, unemployment compensation, military pay, and VA benefits.  FHA doesn’t have maximum income limits, either: people with well-paying jobs or lots of other income can get FHA loans as well.

• Credit – One of the main advantages FHA loans have over conventional loans are the credit requirements. While conventional loans often demand that the borrower have perfect credit and no past bankruptcies or foreclosures, FHA is less strict.

i. You do not need perfect credit to qualify for an FHA loan as long as there is a good reason for any past credit problems. FHA does more of a "makes sense" type credit review.

ii. If you lost your job, had a job transfer, suffered a serious illness or had to support someone suffering a serious illness, this may be reason enough to excuse your credit history. We will need a detailed letter of explanation to help our FHA underwriter understand your situation.

 iii. There are two real credit requirements for an FHA mortgage loan: in the past two years, you should have no bankruptcies, and in the past three years, you should have no foreclosures (or deed-in-lieu of foreclosures).

iv. Additionally, potential borrowers should make sure that any tax debts (also known as “tax liens”) and other judgments have been paid or otherwise a repayment plan has been set up to begin paying them.

v. It is recommended that you have fewer than two “30 day late payments” in the last two years. If you have more when we run your credit, we can work with you to repair your credit.

vi. The best way to see if your credit is good enough to obtain an FHA loan is to get “pre-qualified.” Most lenders offer some sort of pre-qualification service in which they will ask you about your credit history and determine whether or not you’ll be able to get an FHA loan. We like to even go a step further and get you PreApproved. This is a Free service and will give you an even better idea of what it will take to buy a home.

vii. Even if your credit is deemed unacceptable by the FHA, you may still be able to get an FHA loan if you meet one or more of these factors:

1 .Good ability to maintain savings
2. Capacity to make a large down payment
3. Promise of increased earnings or income
4. Limited use of credit
5. Large cash reserves
6. Using the FHA loan for an energy-efficient residence

viii. Some people who’d like to get an FHA loan do not have any credit history at all. This may be because they are too young to have any credit built up, prefer to pay their debts in cash or simply have never borrowed money. These people can also get FHA loans, but must prove their ability to make regular mortgage payments in other ways. We would need to verify utility payments, phone payments, etc to prove your credit history to our FHA underwriter.

• Debt to Income Ratio – This is a very important aspect to qualifying for a loan. The Debt to Income ratio will tell us"

i. How much of what you make in a month goes towards debts that you owe? Hypothetically, if you make $5,000 a month, and you have to pay $1,000 a month in debt, then 20% percent of your income is going towards your debt: that is your debt to income ratio (1000 / 5000 = .25 = 25%).

ii. the FHA guideline requires borrowers use no more than 31% of their monthly income towards paying off housing costs. Additionally, borrowers can’t use more than 43% towards other long-term debt.

iii. With this in mind, remember that your income will determine how much your monthly mortgage payment to FHA will be – your monthly mortgage payment (principal, interest, taxes and insurance) cannot exceed 31% of your monthly income.

iv. In some cases, you can exceed this FHA debt to income ratio, but in order to do this you must have one of these:

1. Cash reserves
2. Good credit history (high FICO score)
3. The ability to make a large down payment
4. Mortgage terms that are less than the allowed maximums
5. A decrease in monthly housing expenses

Quite often we are able to get loan approval with debt to income ratios as high as 45% and 55%.

• Down payment – One of the main things people worry about when buying a home is the down payment (a percentage of the home’s total value to be paid in cash upon obtaining the mortgage loan). For many low- and moderate-income families, a large sum of cash is hard to come by. Fortunately, FHA has one of the smallest down payment requirements among all home loans. The minimum down payment for an FHA loan is just 3.5%. Borrowers usually use their own cash reserves to pay the down payment, but can also use cash gifts and private savings to pay it as well. In fact, the FHA allows 100% of the down payment to be a gift from friends, family, or other sources (that is, if you know someone particularly generous, they can pay the entire down payment for you). If you plan to repair or improve the house yourself, you can use this manual labor as a percentage of the down payment, too.

Contact an Orange County, CA  FHA Specialist Now!.