what are the requirements for a fha loan?

Asked by Nick Fusco, Staten Island, NY Tue Nov 24, 2009

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Deborah Camacho’s answer
Deborah Cama…, Agent, Riverdale, NY
Tue Nov 24, 2009
Dear Nick,

Here is my FHA Quick Reference Guide for you:

The Basics
• Purchase and Refinance
• 1 to 4 unit Owner Occupied Only
• Loan Limits are based on area
• No Maximum or Minimum Income Limits
• Government Insured Loans-Better for the borrower
Loan To Value
• Eligible Properties: 1-4 Unit Residential
• No Cash-Out Refinance: 97.75%
• Cash-Out Refinance: 1-4 Unit: 85%
• Purchase 1-4 Unit: 96.5%
• Purchase (Exclusive Grant): Zero or little cash required
• Cash-out and Debt Consolidation Considered the same thing
• Unlimited Cash-Out Refinance
• No Minimum Credit Score
• FHA is a Story Loan - Explanations are required for all late payments
• Late Mortgage Payments: Cash-out - Max 85% LTV with good explanation
on late Payments
*All mortgage late payments require at least an acceptable explanation and
may require proof for 60’s. (illness, loss of job, etc.)
• Bankruptcy 2 years discharged requires explanation (Minimum 1 Year
with extenuating circumstances - Requires explanation and proof.)
• No New Established Credit - alternative permitted - No new bad credit
• Foreclosures - 3 Year Minimum- Requires explanation
• No open government loan default - Student Loans etc. (Caviars#)
• No Credit OK - Build Alternative - 3 Trades for 12 months.
• Reserves: Refinance not required all LTV’s all property types
• Reserves: Purchase required only on 3&4 unit properties -3 months PITI
• Purchase: 6% sellers contribution, concession permitted all LTVs
• Purchase: Borrower required to have 3% into transaction. Funds can be
used toward closing cost or minimum down payment. Gifts considered
borrower’s own funds
• Secured Borrowing such as 401K, etc. permitted and monthly repayment
does not need to be counted on ratio
• Funds for down payment, closing and reserves, where required must be
seasoned for 3 months. Any large deposits must be sourced and explained
• Asset verification same as Fannie Mae - Past two months statements and
most current or deposit verification.
• Gift permitted, any amount and at all LTV’s. Gifts are considered borrower’s
own funds. Acceptable gift letter and proof of funds and transfer
(certified check and deposit into borrowers account) is required
Income Verification Options
A. • Employment Verification Permitted with Computerized Pay Stub
• Employment is verified through use of a standard FNMA
• Employment verification sent certified or overnight mail
and verbal confirmation
B. Prior 2 years W2’s and 1 month of pay stubs - 4506 Required and
will be checked prior to closing
A. Past two years tax returns YTD profit and loss from accountant
B. 2 Years of continuous employment necessary for primary, does not
have to be same job
C. Special long term job gap exclusion
D. Qualifying ratios
° 2 ratios required mortgage payment only and total DTI 31-43
° Ratios may be exceeded with automated approval and
compensating factors
° Non occupying co-borrowers OK on 1 family,
Must be on deed previous for refinance
E. 3-4 Family self supporting rule
Mortgage Insurance
• Upfront (UFMIP)-FHA charges an upfront mortgage insurance fee of
1.75% for all LTV’s (except for Streamline Refinances, which are 1.5%),
that is financed over the life of the loan. This loan amount is added to the
the life of the loan. This loan amount is added to the loan amount after
the maximum LTV and loan amount calculation (it does not effect the
maximum loan amount)
• Annual MIP-FHA charges an annual mortgage insurance premium as follows:”
• Loans with term > 15 years with LTV ≤ 95% is .50%
• Loans with term > 15 years with LTV > 95% is .55%
• Loans with term < 15 years with LTV ≤ 90% is none
• Loans with term < 15 years with LTV > 90% is .25%
Appraisal Process
• Appraisals are 99% the same as conventional- just formality differences
• Must be an FHA approved appraiser (most are)
• Must be an FHA appraisal
• Conventional appraisals can be switched to FHA appraisals as long as the
appraiser is FHA approved
• LTVs over 95%, over $417,000 in a declining market require a
2nd appraisal
• Cash-out refi’s over $417,000 require a 2nd appraisal *** Actually a second appraisal was just waived today except in the case of property flipping.

If you have any specific questions, please post them anytime.

Best Regards,

Deborah Camacho
2 votes
, ,
Tue Nov 24, 2009
The market is definitely sustaining. We never saw crazy apprecition rates like some other areas, so doing well.

I'm not licensed to do business outside of WA state and a few other states, but I like to answer questions across the country if I feel I can contribute.

Nick, did you get what you were looking for?
1 vote
Nirmala Cara…, Agent, Bronx, NY
Wed Nov 25, 2009
Debra thanks for the great information.
0 votes
Deborah Cama…, Agent, Riverdale, NY
Tue Nov 24, 2009
Hi Keane,

I know, I was thinking it was sort of "TMI" but that's FHA for ya:)

Yes FHA did remove the 2nd appraisal requirement for all loans today, except in the case of property flipping, as I mentioned at the end of my answer.

The company I represent, Mid-Island Mortgage Corp., is the longest established Mortgage Banker in NY and has been specializing in FHA financing since 1960! We do have a wholesale division that accepts loans from Mortgage Brokers if you are interested, but I am not sure if we are handling WA yet. How's the market doing there?

Best Regards,

Deborah Camacho
0 votes
, ,
Tue Nov 24, 2009
Nick, all of the details I listed on my original post is for buyers. Refinance guidelines are a whole different ball game. Let me know if you want more info on refinancing too.
0 votes
, ,
Tue Nov 24, 2009
LOL, Deborah, I thought my answer was long.

By the way, HUD announced they will be removing the 2nd appraisal requirement for FHA loans above $417k. I do not believe most lenders have taken this into effect yet, but it's coming.
0 votes
, ,
Tue Nov 24, 2009
There are lots of guidelines, but I'll do my best to hit the major bullet points


FHA does not have a credit score requirement but most lenders will want at least 620. This number ws 580 approximately a year ago. Don't be surprised if it works its way up to 640.

No chapter 7 bankruptcy in the last 2 years. No seasoning for a Chapter 13 from the day of completing the Ch. 13 payoff.

No Foreclosure in the last 3 years

Cannot have defaulted on a Federally backed loan, so a FHA , USDA or VA foreclosure in the past will likely not be allowed (ever). I've seen lenders still allow it, but it's a case-by-case scenario.

Preferrably clean credit for the past 2 years. Specifically the last 12 months


31/43% Debt-ratios (meaning gross income cannot exceed 31% of the mortgage payment and 43% of all debt payments)

Full employment for last 2 years (work related school can count as work history with degree and transcripts)

3.5% down for traditional FHA. Down payment can be borrowed, gifted from family or funded by a HUD approved Down Payment Assistance.

$100 down for HUD owned Foreclosures

SFR (house)

Manufactured/Mobile (Must be post July 1st 1976 mobile and pass HUD approved foundation inspection. Must be attached to land and only one title for both home and land)

FHA approved condos (after Dec. 7th 2009, no more spot checks allowed)

2-4 unit multi-family


Credit for married couples must both be pulled. If only one borrower has qualifying credit, you can still get a FHA loan but the income for the non-qualifying spouse cannot be used. Income for the credit qualifying borrower must be enough to cover both spouses expenses and new mortgage payment alone unless there's a non-occupying co-borrower (see below for details)

Non-occupying co-borrowers ARE allowed, meaning a family member can co-sign for a buyer without committing to living in the home. Their income can be used to help qualify for the home purchase.

HUD has a non-flipping rule which says you cannot use FHA financing to purchase a house that has been titled in the seller's name for less than 90 days.

FHA ARM'S (Adjustable Rate Mortgages) still qualify the borrowers on the start rate only.

Here are some references for FHA loans:

blog post on spot check removal

link to find approved projects



Blog post on buying a HUD Foreclosure

HUD's website to find HUD foreclosures

The web reference below is for HUD's main website. Please keep in mind that HUD will continue to change guidelines since FHA financing is becoming a prominent source of loan fundings for homeowners. Talk to a trusted lender for any updates on guidelines.
Web Reference:  http://hud.gov
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