FHA loan requirements are
generally more lenient than those of
conventional lenders. The Federal Housing Administration is a
government program administered by Housing and Urban Development
(HUD) to help Americans who can't qualify for a conventional
mortgage loan become homeowners.
There is no minimum income requirement to obtain an FHA mortgage
loan, but you must demonstrate steady income for at least three
years, and demonstrate that you've consistently paid your bills
on time. Seasonal pay, child support, retirement pension
payments, unemployment compensation, VA benefits, military pay,
Social Security income, alimony, and rent paid by family all
qualify as income sources. Part-time pay, overtime, and bonus
pay also count as income as long as they are steady.
Debt-to-Income Ratio Required
The FHA allows you to use 29% of your income towards housing
costs and at total of 41% towards housing expenses plus other
long-term debt. Compare this with a conventional loan, which
generally allows only 28% toward housing and 36% towards housing
expenses plus other debt.
You may even qualify to exceed this ratio, under certain
circumstances. Factors which may allow you to increase this
ratio include: (1) A large down payment; (2) A demonstrated
ability to pay more towards your housing expenses; (3)
Substantial cash reserves, for example at least three months of
mortgage payments; (4) Net worth enough to repay the mortgage
regardless of income; (5) Evidence of acceptable credit history
or limited credit use; (6) Less-than-maximum mortgage terms; (7)
Funds provided by an organization; (8) The potential to earn
greater income in the near future; (9) A decrease in monthly
housing expenses from previous living circumstances.
Down Payment Required
You must have a down payment of at least 3% of the purchase
price of the home, and this cash may be a gift or grant. Most
affordable loan programs offered by private lenders require
between a 3% - 5% down payment, with a minimum of 3% coming
directly from the borrower's own funds.
If you can do certain repairs and improvements yourself, your
labor may be used as part of a down payment (called "sweat
equity"). If you are doing a lease purchase, paying extra rent
to the seller may also be considered the same as accumulating
cash.
