FHA LOANS

An FHA Loan is a mortgage that is guaranteed by the government and insured by the Federal Housing Administration. FHA house loans have lower minimum credit scores and down payments than many conventional loans, making them particularly appealing to first-time homeowners. In fact, more than 83 percent of all FHA loan originations were for first-time home buyers. While the government insures these loans, third-party mortgage lenders underwrite and manage them.

Upfront Mortgage Insurance Premium: When the borrower receives the loan, 1.75 percent of the loan amount is paid. The premium might be rolled into the amount of the funded loan.

Annual Mortgage Insurance Premium: The interest rate ranges from 0.45 percent to 1.05 percent, based on the loan period (15 years vs. 30 years), loan size, and initial loan-to-value ratio, or LTV. This premium is split by 12 and paid on a monthly basis.

FHA LOAN QUALIFICATIONS

Have a FICO score of 500 to 579 with a 10% down payment, or a FICO score of 580 or above with a 3.5 percent down payment.

Use the loan to pay for your principal house.

Have a back-end debt ratio of no more than 43 percent of total monthly income (mortgage + all monthly debt payments). Lenders could allow a ratio of up to 50 percent, in some cases.

Have a two-year job history that can be verified.

Ascertain that the property has been valued by an FHA-approved appraiser and that it complies with HUD criteria.

Wait for one to two years after a bankruptcy or three years after a foreclosure before applying for a loan (lenders might make exceptions on these waiting periods for borrowers with extenuating circumstances).

Have proof of income in the form of pay stubs, federal tax returns, and bank statements.

Have a front-end debt ratio of no more than 31 percent of gross monthly income (monthly mortgage payments).