FHA Guidelines show you minimum requirements
30 Mar

FHA Guidelines

FHA Guidelines

FHA Loans, The Most Popular Option

There are plenty of reasons why FHA Loans are the most popular and make no mistake about it, the FHA Guidelines are some of the most lenient for all borrowers who want to be home owners.  Gone are the days where only first-time home buyers or borrowers with challenged credit are the only ones who sought out FHA Loans. These days, you can see all types of borrowers and credit scores getting approved from all different situations.  FHA Guidelines will also allow borrowers with derogatory credit to be home owners again after just a short mandatory waiting period which we will get to a little later in this article. We will be going through the major items in the FHA Guidelines below but as always if you have any additional questions, please feel free to reach out to me any time as I am more than happy to help out each and every borrower.  You can feel free to call me any time at 630-465-2656 or fill out an application today by clicking here.

FHA Guidelines: Credit Score And Down Payment

Where FHA Guidelines are better than a lot of loan programs out there is the first guideline that most borrowers look at and that is their FICO credit score.  On top of the FICO credit score, FHA Loans also use this score to calculate the down payment needed on your desired home purchase.

  • FICO Credit Score 580+ = 3.5% Down Payment
  • FICO Credit Score 500-579 = 10% Down Payment

As you can see it is more beneficial for borrowers to have as high a credit score as they can as it only allows for less requirements and resources needed to obtain their loan.  For a home with a purchase price of $200,000 the down payments would be $7,000 with a 580+ FICO credit score versus $20,000 for a 500-579 FICO credit score.

FHA Guidelines: Debt To Income Ratio

If you thought your FICO credit score will only affect your down payment requirements, you would be mistaken as FHA Guidelines make your debt to income ratio dependent on the FICO credit score of the borrower.  Your debt to income ratio takes your monthly debts which include auto loans, credit card minimum payments, instalment loans, and your new mortgage payment divided into your gross monthly income.  Housing expenses and other non-installment loans are not factored into your debt to income ratio.

  • FICO Credit Score 620+ = 56.9% debt to income ratio
  • FICO Credit Score below 620 = 43% debt to income ratio

As you can see, having a higher FICO credit score will allow you to have more debt than with a lower fico score and that is because it is believed a higher FICO credit score means that a borrower has more credit worthiness than someone with a lower FICO score.  However, if you do have a lower FICO credit score, don’t let this discourage you as FHA Guidelines will still allow for you to be home owners too.

FHA Guidelines: Derogatory Credit Items

As mentioned at the beginning, the FHA Guidelines allow for borrowers to have derogatory items on their credit history given they meet a mandatory waiting period and have also rebuilt their credit since the event happen.  The waiting periods for these items are below:

  • Chapter 7 Bankruptcy = 2 years after discharge date
  • Chapter 13 Bankruptcy = No waiting period after discharge date or if borrower is still under their repayment plan, as long as they have 12 months of payments made on time and have their trustee approval for a loan
  • Short Sale = 3 years after completion of short sale and the date on the HUD-1 Settlement Statement
  • Foreclosure = 3 years after the sheriff’s sale or date the deed is removed from the borrowers name

Aside from the mentioned derogatory items the FHA Guidelines also have ways that they treat collection and charge off accounts.  Collection accounts are broken into two types and that is medical and non-medical. For medical collections FHA Guidelines don’t penalize you for these and will not count them in your debt to income ratio.  However, if you have non-medical collections that total more than $1,000, you will be required to use 5% of the total in your monthly debt to income ratio. If you have charge off accounts on your credit report, you will not need to pay them off as FHA Guidelines treat them like medical collections as they are not held against you or factored into your debt to income ratio.

There are plenty of other items within the FHA Guidelines, but these are the main ones that borrowers must be familiar with when deciding which loan program is right for their situation.  If you do choose an FHA Loan, I can definitely go into a lot more details regarding FHA Loans and can ensure your understanding of the loan before we close and finalize the deal. I am available 24-7 by call or text at 630-456-2656.  I look forward to helping you out and getting your application started.

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