FHA FAQ – Frequently Asked Questions
We will be answering a lot of the frequently asked questions throughout this website which is quickly becoming a hub for everything related to FHA loans. Below is our FHA FAQ and is essentially a compilation of the most common FHA questions that people have. In some instances, we have a full article that addresses these questions in depth.
If you have any additional questions that are not answered, please ask them in the comments below and we will reply. Our first question will be the most basic one that is often asked:
What is the FHA?
The “FHA” stands for the Federal Housing Administration. The FHA is a government agency that that insures private loans issued for residential primary residence homes.
Questions About Qualifying for an FHA Loan
How do I qualify for an FHA loan?
To qualify for an FHA loan, you must be able to document your income, have a minimum down payment of 3.5%, no recent bankruptcy or foreclosure, a two year work history, and a minimum of a 500 credit score. Read [how to to get approved for an FHA loan]
Is FHA just for low-income borrowers?
FHA loans are for anyone who wishes to take advantage of the benefits of an FHA loan and who can qualify. Although there are loan amount limits, there are no income restrictions.
How much of an FHA loan can I qualify for and afford?
FHA lenders will qualify you based upon your debt to income ratio. The more you earn and the less debt you have, the more you can qualify for and afford. The best way to determine how much you can qualify for is to speak to a lender early in the process to determine where you stand. You can also use this home affordability calculator to get a head start.
What is a good credit score when applying for a mortgage?
A credit score of 680 or higher is considered to be “good” when applying for a mortgage. However, there are FHA lenders who will allow for credit scores as low as 500. The higher your credit score, the better your rate will be. Read our article about the FHA credit requirements.
Are FHA loans just for first-time home buyers?
FHA loans are for anyone who can qualify for the program and they are not just for first time home buyers. However, the majority of the individuals who do apply for an FHA loan happen to also be first time home buyers.
Can I Qualify for an FHA loan with a High DTI?
The typical debt to income ratio ceiling is 43% for an FHA loan. However, FHA guidelines permit lenders to allow for DTI ratios to go as high as 56%. When your DTI is over 50%, lenders will often look for compensating factors to offset the risk that comes with the high DTI.
Can I get an FHA loan with student loan debt?
You can still qualify for an FHA loan even if you have student debt. The lenders are required to use 1% of the outstanding balance as your “payment” when calculating your DTI. This different than how student debt is handled vs a conventional loan and makes qualifying for an FHA loan with a high student debt balance more difficult. We recommend that you speak with one of our FHA lenders to discuss your scenario and see how much you can qualify for.
Can I qualify for an FHA loan if I have a bankruptcy?
You may still qualify for an FHA loan even with a bankruptcy in your history. However, the FHA guidelines require that you wait at least two years from a chapter 7 discharge and have proven to get back on your feet financially while rebuilding your credit. Chapter 13 bankruptcies have a shorter waiting period of only one year. Read our article on the FHA bankruptcy waiting period for more information and learn how to get an FHA loan despite having a bankruptcy.
Can I qualify for an FHA loan if I have a foreclosure?
You may still qualify for an FHA loan even with a past foreclosure. However, the waiting period after a foreclosure will be at least 3 years from the date when the home was sold, not from the day your home was foreclosed upon.
Do collections need to be paid off before getting an FHA loan?
Collections do not have to be completely paid off prior to applying for an FHA loan. In addition, medical collections are handled differently than other types of collections. Read our article on qualifying for an FHA loan with medical collections and do not pay off anything until you speak to a lender and get guidance from them on how to proceed.
Questions About Applying for an FHA Loan
What information will I need to gather to apply for an FHA loan?
FHA lenders will ask you to gather the following documents at a minimum:
- 2 months bank statements
- last 30 days pay stubs
- last 2 years’ W2s and tax returns
- contract for sale for purchases
- deeds and current mortgage statement for refinances
- a copy of your homeowner’s insurance policy binder
There will be additional documentation that may be required by your lender as per the FHA guidelines.
If I am pre-qualified for an FHA loan will I be approved?
A pre-qualification is an initial indication 0f your FHA approval based upon the limited information that you provided the lender up front. Once you provide all of the necessary documentation and your lender has a chance to pull your credit and run your loan scenario through underwriting, then you can get an approval.
How long do FHA loans take to close?
The average FHA loan takes about 30-45 days to close. However, purchases are typically longer than refinances. There are third parties such as appraisers, title companies and attorneys which can at times add length to the process. It is possible to get your FHA loan closed in as little as 3 weeks if managed efficiently.
Can I apply for an FHA loan without my spouse?
You may apply for an FHA loan without your spouse. However, the lender still may want to see your spouse’s credit report. For refinances, local laws will also require that your spouse sign a document acknowledging that you are taking out a mortgage against your mutual primary residence.
Can I apply for an FHA loan online?
Most of the FHA loan applications happen online today and in most instances, the borrowers do not meet the loan officers face to face. The world of technology affords you access to lenders all around the US which is a benefit to you. Some of the best FHA lenders do not have a brick and mortar office in your neighborhood.
Can I qualify for an FHA loan while on disability?
The FHA guidelines do have a provision to allow you to qualify while earning disability income. However, the disability income must be enough to meet the FHA DTI requirements as if that income was from a job. Read our article on applying for an FHA loan with disability income.
Can I qualify for an FHA loan if I am self employed?
Self employed individuals can absolutely qualify for an FHA loan. However, they will need to qualify using the net income on their tax returns. Most self employed borrowers show a low net income due to all of the tax write offs which makes it difficult for them to qualify for an FHA loan. Read [ FHA loans for self employed ]
Can I apply for an FHA loan without a two year work history?
When applying for an FHA loan, there are a few exceptions where you do not need a full two year work history. One is if you were in school full time and the other is if you were in the military. For both scenarios, you would need to provide documentation. There also may be other exceptions that can be accepted by your lender.
Questions About the Down Payment and Closing Costs
What Down Payment is Needed for an FHA Loan?
The minimum down payment needed for an FHA loan is 3.5%. If your credit score is below 580, then you will nee 10% down.
Can my down payment be gifted?
Your down payment can absolutely be gifted. In fact, the gift can be large enough to also cover your closing costs and reserves. Read our article on FHA gift funds guidelines.
Can the seller gift the down payment?
The only way you can get a gift of equity from the seller is if that seller is a relative.
Can the seller pay my closing costs?
The FHA guidelines permit to contribute up to 6% of the sale price towards the buyer’s closing costs. This is often managed during the negotiation process and is a great option for home buyers who are limited on cash.
Can the FHA closing costs be included in the loan?
There is a way to have your closing costs financed into your FHA loan. Our article on rolling closing costs into an FHA loan will describe this completely.
What kinds of FHA grants are available?
There are many grants available to home buyers who wish to finance their purchase with an FHA insured loan. The agencies offering the grants will differ for each state. Read our article on FHA down payment assistance and grants.
What is FHA mortgage insurance?
FHA mortgage insurance is there to protect lenders in case of a default on the FHA loan. Lenders are taking on more risk when they allow you to put down just 3.5%. As a result, you will have to pay for the FHA mortgage insurance. That can be fully explained in our article about FHA mortgage insurance.
How can I cancel the FHA mortgage insurance?
Recent changes to the FHA guidelines made FHA mortgage insurance remain in place for the life of the loan. As a result, the only way to cancel FHA mortgage insurance is to refinance to a different mortgage program or sell the home.
What are the FHA closing costs?
FHA closing costs are generally 2%-5% of the loan amount depending upon your purchase price and other factors. However, there are ways to reduce your out of pocket closing cost expenses. Read our article on FHA closing costs to get an estimate on what it may cost you.
Are there any fees on FHA mortgages?
FHA loans have fees that are standard and customary for any mortgage, not just with FHA loans. Some of the fees are generated by third parties or the lender. Read [ 5 ways to lower your FHA closing costs ]
General Questions About FHA Loans
What are the FHA rules on flipping homes?
Home buyers are not permitted to buy and flip homes quickly. If a home is bought and then sold quickly, the new buyer may not have the ability to purchase that home with an FHA insured loan. Read our article on the FHA flipping rule.
Is a home inspection required when using an FHA loan?
HUD requires the home to be inspected before they will finance the home. They want to make sure the home is worth what you are paying. They also want to be sure that the home meets their minimum standards for a habitable home. Read our article on buying FHA approved homes to find out what the minimum standards are for a home.
What if the FHA appraisal is below sale price?
If the appraisal is below the selling price, you can still purchase the home but you will have to cover the difference with additional down payment money. The lender can only finance 96.5% of the appraised value or the selling price (whichever is lower).
Can an FHA loan be refinanced?
FHA loans can absolutely be refinanced and they even offer a faster less expensive version called an FHA streamline refinance which does not require and appraisal or income verification.
Can You Cash Out Equity When Refinancing an FHA Loan?
You can refinance your FHA loan and also cash out additional funds. Effective September of 2019, the most you can cash out is 80% of the appraised home value.
Which banks and lenders offer FHA loans?
Most banks and lenders offer FHA loans because they are popular, they are profitable, and their risk is covered by the mortgage insurance. However, not all banks offer all of the FHA programs and features. Many lenders also have higher credit score requirements. We can help you to find the right lender for your personal needs.
Does FHA offer adjustable-rate loans?
FHA loans are available in adjustable or fixed rate loans. However most borrowers opt for the fixed rate versions.
How are FHA rates determined?
FHA rates are largely determined by a combination of your credit score, loan amount, and property type. Most lenders have FHA rates that are very similar.
How do I get the lowest FHA rate?
The best way to get the lowest FHA rate is to have a credit score over 720. Then, you can ask the lender what it would cost to buy down your rate. The longer you plan to live in the home, the more sense it may make to buy your rate down. Read [ how to get the lowest FHA interest rate today ]
Can FHA loans be used to rehabilitate a home?
There is a special mortgage called the FHA 203k loan which is specifically designed to help buyers purchase the home and borrow the funds needed to make FHA approved repairs and improvements.
Do FHA loan limits change?
The FHA loan limits are set by county and the limits change virtually every year. When the limits change, they typically increase due to the rising real estate prices nationally. Read [ FHA loan limits ]
What is the FHA Connection?
The FHA Connection is a system that connects authorized lenders and FHA business partners to view and access the files together to help process your loan.
How do I get an energy efficient mortgage?
The FHA’s Energy Efficient Mortgage is a great way to purchase a home and borrow the funds needed to make energy saving improvements in the home. Some FHA lenders offer this program although very few home buyers apply for it. Read our article on the FHA energy efficient mortgage.
FHA loans for manufactured homes?
You can get an FHA insured loan for either double or triple wide mobile homes, or factory built prefabricated houses. Read our article on the FHA manufactured and mobile home guidelines.
I have already have one FHA home loan. Can I get another one?
You can absolutely finance your next home with an FHA loan. However, they will not permit you to use FHA insured financing to purchase a vacation home or a rental property. There are some ways to get an FHA on two homes at the same time and that is explained in our article about buying a second home with an FHA loan.
Can an FHA loan be assumed?
FHA loans can be assumed but there are quite a few stipulations and requirements. We outlined it all for you in our article about assuming an FHA loan.
Can an FHA loan be used to buy land?
You cannot get an FHA loan solely to purchase land. However, you can buy a lot and also purchase the construction of a home all in one FHA loan. Read [ FHA one time close construction loan ]
Can an FHA loan have a co-signer?
FHA loans can have a co-signer to help bring additional income to the loan application. The co-signer may also have another FHA loan on his or her own primary residence. Read [ FHA cosigner guidelines ]
Can an FHA loan be used for new construction?
FHA loans can be used for new construction. The program is called the FHA one time close mortgage where you can finance the purchase of the lot, plus the construction costs all in one loan. Read [ FHA one time close construction loan ]
Can I buy a fixer-upper with an FHA loan?
Homes purchased with a traditional FHA loan must meet minimum standards. As a result, some fixer-uppers may not qualify. However, you can buy a home that is in need of repair with the FHA 203k loan. which allows you to borrow the funds needed to make the FHA approved repairs.
What are the FHA interest rates?
The interest rates on FHA loans are extremely low and typically lower than conventional loans. Your financial situation and credit score will have a huge impact on the rate offered to you. One of the lenders in our FHA network can help provide you with a rate quote.
Are all FHA lenders the same?
All lenders are not the same because they all impose their own restrictions and limits. Some lenders will work with borrowers with credit scores as low as 500 as allowed by the FHA guidelines. However, other lenders prefer not to go below a score of 620 for example.
5 Critical Facts about FHA Loans – Some additional references and questions related to FHA loans.
HUD’s List of Frequently Asked Questions – This reference is answering questions regarding FHA loans, but many of them are not very common questions that consumers would be looking for.