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Many people in the market for a home of their own, including first time home buyers, want to know how to qualify for an FHA loan. Though qualifying is not a complex process, meeting the guidelines is necessary. For those who do not meet the necessary guidelines to qualify, understanding what they are will help in working toward a position that does qualify for an FHA loan.
In order to qualify for an FHA loan, the applicant or applicants should have a steady employment history, having been with the same employer for at least two years. If this is not the case, the applicants will not likely qualify. For those who do not have two years worth of employment history, it may be possible to make an exception, but this will be up to the underwriter.
To qualify for an FHA loan, the applicant or applicants should have an income level that will allow them to spend no more than 29% to 30% of their income on the mortgage payment before taxes and insurance. In some cases, up to 35% of the income can be approved, provided the applicants can prove to the underwriters they can handle the additional payment. Those who can handle the additional expense usually have a higher income or less debt. The last two years of income information from all sources should be provided, and the income should be steady or increasing in order to qualify. If there are other sources of income, such as that from an additional part time job, child support, alimony, etc., this can also help with the qualification process provided the income is reliable and steady.
Credit Score and History
The applicant should have a credit score of at least 620 and have two or fewer 30-day late payments within the last two years. If the credit score is not at 620, an exception may be made if the applicant can prove there were extenuating circumstances and the situation will not repeat itself. If there is not at least a two year credit history because the applicant has not reached age 20, or there is no credit history at all, other sources, such as utility bills may be used to show a satisfactory payment record. If there are any debts that have less than 10 months remaining on the report, these debts will usually not be considered in the debt ratio because they are almost paid in full and will not be an issue for the majority of the life of the loan.
If the applicant does not have a satisfactory job history, income, or credit history, they will likely be denied or asked to have a cosigner who meets these requirements. All three parts of the equation must be met before the loan will be approved. For those who do not qualify now, taking steps to secure a steady job and improving the credit score will be wise. A credit score will usually improve within 6 months, so it is important to start planning now for the best result later.
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