FHA Loan Requirements and Underwriting Guidelines 2017

There are several reasons why a borrower would want to consider applying for an FHA loan. You may want to buy a home, but you don’t have a down payment that a conventional mortgage would require. You would like to refinance your property, but you don’t have the required amount of equity in your home, or you might have had some credit issues in the past that has given you an unhealthy credit score.

What is the Federal Housing Administration?

The Federal Housing Administration, commonly known as “FHA,” is part of the U.S. Department of Housing and Urban Development (HUD.) The program was created for low income individuals, or families that might need a little help in the home ownership process. FHA does not fund loans; they insure residential mortgages for FHA approved lenders in case a borrower defaults. This allows borrowers to qualify with lower interest rates and be subject to less strict underwriting guidelines.

FHA Mortgage Requirements for Purchases and Refinances

  • FHA provides insured mortgages for single family homes, multiunit homes, as well as condominiums
  • FHA loan maximum can vary per county; however, $521,250 is the average for most counties. You can check what your county’s maximum loan amount is here
  • As of late 2009, the minimum down payment has risen from 3% to 3.5%
  • You must have two years of steady income and your DTI (debt to income ratio) cannot exceed 29%. Meaning, if you have a monthly income of $3,000, your mortgage payment cannot exceed $870, which is 29% of your monthly income
  • The borrower cannot have a credit score under 580, or 620 depending on the lenders’ guidelines
  • The first mortgage to be refinanced must already be FHA insured and current
  • The new FHA refinance must reduce the borrower’s monthly principal and interest rates with a cash-out no greater than 85% loan to the value of the home
  • A bankruptcy must have been discharged for a minimum of 2 years and has not had a foreclosure for at least 3 with unblemished credit since
  • Minor collection accounts do not need to be paid in full in order to qualify for the loan. Judgments, on the other hand, must be paid in full.

These are the latest FHA mortgage requirements from HUD as of  the changes that were made in late 2009. If anything should change in the mean time, please let me know and I will update the requirements immediately.

Banks Easing Up on Tight Mortgage Guidelines in 2015

In the slow recovery of the housing crisis, the mortgage industry is definitely starting to see significant improvement.  While the lending criteria has certainly been tightened up over the past year, the good news is that mortgages are moving in the right direction and eligible borrowers are starting to apply for loans and refinancing once again.  Additionally, certain banks are beginning to ease up on the stricter guidelines, as long as potential borrowers meet specific criteria.

  • Senior bank officers were recently surveyed, and here are some interesting results:
  • Banks easing up on mortgage guidelines – 6.1%.
  • Banks implementing tighter guidelines – 1.5%.
  • No change in guidelines either way (e.g.) tightening or loosening – 92.3%.

While there is a bit of loosening going on, the change is definitely for the better. This latest survey actually is the ninth in a row where less than 10 % of lending institutions have reported tightening their standards.  This is good news for potential borrowers that are looking to purchase a home in 2013 or 2014, as the demand for homes is slowly but surely growing.  So, while there are definitely tighter qualification criteria overall, there are a variety of  banks that are willing to bend.  Additionally, mortgage software provider Ellie Mae has recently reported a 5 % overall increase in the amount of approved mortgage and refinance applications.

With the lenders slowly easing up on their credit standards combined with the high demand for credit, Americans are finding that borrowing from banks is starting to become easier, which in turn supports overall spending, contributing positively to the economy.  And there is no better time than the present, as a government budget cut is right around the corner.

FHA Home Loans Are Becoming the New Sub-Prime

More and more borrowers are turning to FHA loans, due to the fact that FHA lenders are willing to counsel them and advise on how to fix the areas of their credit that may be hindering them from obtaining loans.  They are also helpful when it comes to rescoring the borrowers’ overall credit.  While at one point in time FHA loans were only popular among first time home buyers, many of today’s borrowers are previous homeowners that may have issues with past credit, mainly due to unemployment and the economic crisis. FHA loans can help these borrowers move forward by allowing lower down payments and more leniency with the mortgage application process.

Mortgage Statistics For 2012

Based on statistics reported from the mortgage automation company Ellie Mae, here is what the average mortgage loan process looked like in the year 2012:

  • The average closing time on a mortgage loan in 2012 was 48 days.
  • The average mortgage loan down payment in 2012 was approximately 21%.
  • The required credit score to obtain a mortgage was 748. Currently, only 37% of 200 million Americans hold a 748 or higher.
  • In 2012, the debt to income ratio was 34% overall household debt compared to a 23% monthly mortgage payment.
  • The average interest rate in 2012 was 3.90%.

While the statistics definitely show improvement, it is important for anyone looking to obtain a home loan to understand that while certain banks are easing up on the strict guidelines, there is also specific criteria that all borrowers must meet.  It is always a good idea to take a good look at your finances and current job situation before making the final decision to apply for a mortgage.  While the economy is slowly making its way back, there are still quite a few roadblocks that borrowers may come up against, so it is always wise to proceed with caution when it comes to taking out a large loan.