A Federal Housing Authority (FHA) loan is more personalized and flexible than a
Conventional loan. Because of the FHA expanded guidelines, you are likely to be
approved for an FHA loan even if you have a blemished credit history or minimal down
Before you apply for an FHA loan, you should analyze your financial situation to get
a good understanding of what you can afford, what you are willing to pay, and how
you will explain any problems on your credit report. In addition, you will have to
provide your social security number and date of birth so that a full credit analysis can be
performed. Be prepared to provide a written explanation of any late payments that show
up on your report going back over the last two years. To qualify for an FHA loan, get
your bills paid up to date and ensure you’re score is at least 620 before applying.
The loan officer will ask you about your current employment status to determine
your ability to repay a loan. Ideally, you will have been employed at the same
business for at least the past two years; this shows income stability. The loan officer
is going to want to see your last two years W2s as well as your most recent pay stubs.
The next item that will need to be reviewed is the home you are looking to purchase or
refinance. In either case, you will have to qualify for the loan financially in two ways:
with the “front end ratio” and “back end ratio”. Your front end ratio only considers your
mortgage payment. It includes principal, interest, property taxes and home owner’s
insurance. Ideally, your front end ratio will be under 29% of your gross (before taxes)
income. Your backend ratio considers all recurring debts, including the mortgage
payment, and will be the higher of the two ratios. Your backend ratio should be under
Because FHA loans are more flexible than Conventional loans, these qualification
guidelines are just that. They should be used to gauge what is considered standard and
what you need to do to prepare before you submit a loan application.
In many cases, a home buyer can qualify for a much larger loan amount than they
realize. Keep in mind that just because you qualify does not mean you should take out
a loan of that size. Don’t get yourself in over your head as only you know what you
can comfortably afford. A lender does not look at every aspect of your financial world
so you may have financial commitments that are not considered in the loan approval
Once you have your ducks in a row, do some online research, call your bank and shop
around for the best rate and terms. Good luck!