Published On: Tue, May 16th, 2017
Money | By nnw

Buying a house? An insider's guide to FHA loan requirements for 2017

Here’s what you need to know about the requirements to borrow an FHA loan without the government jargon and footnotes.(Photo: Getty Images/iStockphoto)FHA loan requirements for 2017 are contained in a 1,009-page “handbook” published by the U.S. Department of Housing and Urban Development. You would need at least a 20-ounce cup of coffee with a turbo shot just to stay awake through the first 20 pages. Good news: You don’t have to.Here’s what you need to know about the requirements to borrow an FHA loan without the government jargon and footnotes.A core requirement in getting an FHA-insured loan is a FICO credit score of 500 or better. That gets you in the door, but to snag the lowest down payment, you’ll need a much higher credit score.“To qualify for FHA’s minimum down payment of 3.5%, a borrower must have a credit score of 580 or above,” Brian Sullivan, HUD public affairs specialist, tells NerdWallet. “Between 500 to 579, the borrower must put 10% down.”There is no minimum — or maximum — salary you can earn that will qualify or prohibit you from getting an FHA-insured mortgage. However, you must:Your total debt-to-income ratio — including the new mortgage, credit cards, student loans and any other monthly obligations — must be 50% or less, according to Sullivan.The property must meet FHA geographic loan limits. In 2017, that’s generally $275,665 for single-family homes in low-cost areas and $636,150 in high-cost areas. Alaska, Hawaii, Guam, and the Virgin Islands have limits up to $721,050.In addition to borrower qualifications, the property itself must meet certain requirements before you can qualify for an FHA mortgage.Here is some of the documentation you will need when applying for an FHA home loan.Of course, there are other stipulations — remember the handbook is 1,009 pages — but an FHA-approved lender will walk you through the details if other requirements apply to you.The FHA is insuring the loan, but a lender makes the final decision — and can determine what specific qualifications it requires.“We can set our standards, and we can say, ‘If you meet these requirements, FHA will insure a mortgage on that loan.’ And yet, lenders may add on what are called ‘credit overlays’ on top of our standards, and make it that much harder to qualify for a loan that they originate,” Sullivan says.Those requirements can include a higher FICO credit score, or a better debt-to-income ratio. It’s a good reason to shop more than one lender.» MORE: Best lenders for FHA loans“FHA’s standard underwriting criteria is rolled up into a ‘scorecard’ that considers many factors related to income and debt,” Sullivan says. “Under certain conditions, particularly when a borrower doesn’t fit into our general scorecard requirements, a manual underwriting is required.”That means if your situation doesn’t neatly fit within all the guidelines, a lender may consider your loan application as a one-off instance, an exception. Frankly, lenders aren’t always eager to do that.“This [program] is for working families of relatively modest means,” Sullivan notes. It can be a good option, especially for first-time home buyers, he says. Not only are the credit qualifications easier to meet, but FHA loans also come with low mortgage rates, though lenders set rates, not the FHA.However, a low mortgage interest rate and small-down-payment loan backed by the FHA do come at a cost. Borrowers with FHA-backed loans pay mortgage insurance premiums — an upfront payment as well as an ongoing fee built into their monthly payment for the life of the loan — that protect the lender from a loan default.But an FHA-insured loan is not the only low-down-payment alternative. If you are serving or have served in the military, you may qualify for a loan backed by the Department of Veterans Affairs. A VA loan requires no down payment.And if your credit history is in good shape, you might want to consider a low-down-payment conventional mortgage. You will likely pay a slightly higher interest rate, but the mortgage insurance can be canceled after you gain enough equity in your home, unlike with an FHA loan.Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: hal@nerdwallet.com. Twitter: @halmbundrick.The article FHA Loan Requirements for 2017   originally appeared on NerdWallet.More from NerdWallet