An FHA Loan is a government-backed mortgage insured by the Federal Housing Administration (FHA). It is designed to help first-time homebuyers, low-to-moderate income borrowers, and those with less-than-perfect credit achieve homeownership. FHA loans offer lower down payments and more flexible qualification requirements compared to conventional loans.
✔ Low Down Payment – As little as 3.5% down for borrowers with a credit score of 580 or higher.
✔ Flexible Credit Requirements – Accepts credit scores as low as 500 (with a 10% down payment).
✔ More Lenient Debt-to-Income (DTI) Ratios – Allows higher DTI compared to conventional loans.
✔ Government-Backed Security – FHA loans are insured by the government, reducing lender risk.
✔ Fixed and Adjustable-Rate Options – Choose between 30-year and 15-year fixed-rate mortgages or adjustable-rate options.
✔ Assumable Loans – FHA loans can be transferred to a new buyer if they qualify, which can be beneficial in a low-interest-rate environment.
✅ First-time homebuyers looking for an affordable mortgage.
✅ Borrowers with lower credit scores who may not qualify for conventional loans.
✅ Individuals with limited savings who need a low down payment.
✅ Those looking to refinance into a more manageable loan structure.
✔ Minimum Credit Score: 580+ for 3.5% down (or 500-579 with 10% down).
✔ Debt-to-Income Ratio: Typically up to 57% with compensating factors.
✔ Mortgage Insurance Premium (MIP): Requires upfront & annual MIP, which protects lenders.
✔ Primary Residence Requirement: Must be your primary home (not for second homes or investment properties).
Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:
Employment
Savings
Credit
Personal
Refinancing or Own Rental Property
The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.
Your monthly costs should not exceed 29% of your gross monthly income for a FHA Loan. Total housing costs often lumped together are referred to as PITI.
P = Principal
I = Interest
T = Taxes
I = Insurance
Examples:
Monthly Income x .29 = Maximum PITI
$3,000 x .29 = $870 Maximum PITI
Your total monthly costs, or debt to income (DTI) adding PITI and long-term debt like car loans or credit cards, should not exceed 41% of your gross monthly income.
Monthly Income x .41 = Maximum Total Monthly Costs
$3,000 x .41 = $1230
$1,230 total - $870 PITI = $360 Allowed for Monthly Long Term Debt
FHA Loan ratios are more lenient than a typical conventional loan.
Yes, generally a bankruptcy won't preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.
