Here’s a brief overview of the qualifying requirements for an FHA loan.
Must Be A Primary Home Purchase
You won’t be able to take out an FHA loan if you’re buying a vacation home or a rental property. Here’s why: FHA loans are only available to those who wish to purchase a primary home they’ll live in most of the time.
Minimum Credit Score For The FHA Loan
One of the most noteworthy advantages of an FHA loan is its relaxed credit score requirement. Believe it or not, you can take out this type of mortgage with a credit score that’s as low as 500. However, it should be noted that you need a higher down payment to get a loan if you have this credit score. Additionally, not many lenders do these loans because they’re considered subprime. If you do get one, it’ll most likely be at a higher interest rate to compensate for the additional risk.
Most lenders, including Quicken Loans®1, have a minimum median FICO® Score of 580 or higher. If your score is in this range, you can purchase a home or do a rate/term refinance as long as your debt-to-income ratio is fairly low.
If you have a median FICO® Score of 620 or better, you can get a cash-out refinance.
Proof Of Income And Employment
FHA loan lenders want to know that you’ll have the funds to pay back your loan. Therefore, they’ll ask you to show that you’re financially stable through proof of your job and income.
As a starting point, a lender may ask for 2 months’ worth of bank statements, along with 2 years’ worth of tax returns and W-2s and a couple of your most recent pay stubs. If you have less than 2 years’ worth of time on a job, it’s not impossible to be approved, but you should talk to your Home Loan Expert about options.
Your debt-to-income ratio is the total of your monthly debt payments divided by your gross monthly income. The requirements are going to depend on what you’re trying to do as well as your credit score.
Let’s say you’re doing a purchase or rate/term refinance with a median FICO®Score in the range of 580 – 619. Your mortgage payment can comprise no more than 38% of your income. Additionally, your overall debts including the mortgage payment should be no more than 45% of your gross earnings.
In addition to being able to take cash out on an FHA loan through Quicken Loans with a median credit score of 620 or higher, you may be able to qualify with a slightly higher DTI. Although there’s no hard and fast rule, you can theoretically be approved with a DTI of up to 57%, depending on your qualifications. Judgments are made on a case-by-case basis.
FHA Down Payment
So how much should you save for a down payment? If you have a credit score of at least 580, you can get an FHA loan with only 3.5% down. In the event your credit score is 500 – 580, you’ll need a down payment of 10%.
You can get your entire down payment through gift funds from family, an employer assistance program, a charitable organization or a government down payment assistance program.