An FHA loan is perhaps one of the easiest mortgages to obtain because the requirements are extremely flexible, and the down payment is very low. Following are some of the major qualification criteria for an FHA loan:
Credit - FHA will often overlook minor credit problems or issues in the past, provided there is a "reasonable explanation" for the problems. The past two years of the applicant's credit profile will be examined with the most scrutiny, so it's important that the borrower make an effort to maintain good credit history. Any collection accounts or judgments will need to be satisfied before a loan can be approved.
Debt To Income Ratio FHA
Income - FHA is more flexible than most other lenders with regard to income criteria. Provided that the proposed loan payments are not more than 35% of the applicant's monthly gross income, there should be no problems. This percentage is higher than most other lenders, who usually want the number to be under 29%.
Employment - FHA will verify the employment history of applicants and will go back two years. Previous employers will be contacted and asked to fill out a simple verification form to prove that the mortgage applicant actually worked. Although most lenders require a consistent employment with the same company for the preceding two years, FHA simply requires that the applicant has had gainful employment.
Assets - FHA will contact the applicant's banks and other depository institutions to request verification of average account balances for the preceding two or three months. As with any lender, FHA requires that the applicant have at least three to six months worth of available funds as a security reserve.
Debt-To-Income Ratio - FHA is more lenient than many other lenders in this respect also, requiring that the new mortgage payment result in a total debt-to-income ratio of not more than 40%. This means that no more than 40% of the applicant's total monthly income should be used toward paying bills.
How To Qualify For an FHA Loan