What are FHA Guidelines for Loans? How to Assess Eligibility for FHA Loans

For some consumers getting a mortgage can be difficult. They may not have the cash to fund their start-up costs and may find it hard to get affordable interest rates or approval for standard products. FHA loans are a solution that can work as an alternative. What are the criteria needed to qualify for this kind of finance?

What do FHA Loans do?

These loans are given to qualifying consumers that may otherwise find it hard to take out a standard and/or affordable mortgage. Backed by the Federal Housing Administration (FHA), a loan here is given out by a lender but the backing it gets from the government can make it easier for some people to get approval in the first place. They are also more likely to qualify for rates that they can afford even if they have credit issues.

Can Anyone Get an FHA Mortgage?

Although these loans are designed to help people who would otherwise find it hard to get a mortgage this doesn’t mean that they are offered to everyone. There are criteria in place to protect both lenders and mortgage borrowers. So, for example, in most cases the individual will need to show that they:

  • Have been in a stable job for at least two years ideally with the same company/employer.
  • Have earned the same or seen some salary rises in the last two years.
  • Are not looking to spend more than 30% of their gross income on their mortgage payments.
  • Have had their property checked over by an FHA approved appraiser.

Although these products don’t consider credit scores in exactly the same way as standard mortgages, there may be factors to consider here as well.

The FHA Loan and Credit Problems

Getting this kind of mortgage is often easier for those without perfect credit histories and lenders may be more accepting of issues. The fact that the lender is given government backing minimizes their risk so a credit score may simply not be as important to them. This doesn’t mean, however, that an individual with bad credit will automatically be approved for an FHA loan.

Minor credit problems may be viewed by lenders on a case by case basis. If there have been significant problems in the past, such as bankruptcy or foreclosure, then they will usually expect to see at least a couple of years of good financial management after the event to show improvement.

Consumers need to be aware that they will be given limits on how much can be borrowed with FHA loans. This varies from state to state and could affect whether they can raise enough finance to buy a property. As with any financial deal, it may also be worth comparing rates before applying for a product. A mortgage calculator or refinance calculator could be useful here.