What are the eligibility requirements for FHA home loans?

Question: “I want to use an FHA loan to buy a house, because I don’t have much money saved for the down payment. I was told I can put 3% down through this program. What are the eligibility requirements for FHA home loans in 2010?”

We need to clear up some misinformation first. Then we can talk about the eligibility requirements for this mortgage program. The current down-payment requirement for FHA loans is at least 3.5%. In order to qualify for this down payment, you will need a FICO credit score of 580 or higher. If your score is below 580, you’ll have to put at least 10% down for an FHA-insured mortgage.

With that item cleared up, we can move on to the eligibility criteria for FHA home loans.

Who is Eligible for FHA Loans?

The Federal Housing Administration (FHA) is part of the Department of Housing and Urban Development, or HUD. This department is part of the federal government. The FHA insures home loans made by approved lenders. So if you want to apply for one of these loans, you must first locate an FHA-approved lender in your area. You can do that on this page.

Let’s start with the basic eligibility requirements for these loans. You will need a valid social security number, and you must be a lawful resident of the United States. You need to be old enough to sign a mortgage loan, in accordance with your state’s laws. This is just to get your foot in the door. If you want to actually get approved for an FHA home loan, you’ll have to meet additional eligibility criteria.

When you apply for the loan, the lenders will review your income, assets, debts and credit history. So let’s talk about each of these requirements in turn:

The FHA loan program does not have any exact income requirements. But they do prefer a certain debt-to-income ratio. In short, you need to have enough income to cover your monthly mortgage payments — as well as any other debts you currently have.

In most cases, the 29/41 rule applies. This means that your monthly mortgage costs should not exceed 29% of your gross monthly income. Your total combined debts (including your mortgage) should not exceed 41% of your monthly income. Again, this eligibility requirement is not set in stone. But it is used in most FHA loan situations.

Credit scores are another eligibility requirement for FHA loans, but they’re equally hard to pin down. Generally speaking, the credit score requirement for FHA mortgage is more “relaxed” than with a conventional mortgage. That goes for the rest of the qualification process, as well. The reason for this is the government backing. The federal government insures lenders against any losses they might incur. So the qualification requirements are less stringent than they would be on a conventional mortgage.

We talked about two important FICO score “cutoff” points earlier. If you want to qualify for the 3.5% down payment on your FHA loan, you’ll need a score of 580 or higher. Anything below that, and you’ll have to put more money down — at least 10%. As for the absolute minimum score needed to get approved, you’ll have to talk to your lender about that.

Those are the main eligibility requirements for the FHA mortgage program. If you want to find out if you’re qualified for one of these loans, you can start here:

I hope this answers your question. Good luck.