FHA Loan Products | UWM (2024)

FAQs

What will disqualify you from an FHA loan? ›

The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.

There are three popular reasons – bad credit, high debt-to-income ratio, and overall insufficient money to cover the down payment and closing costs of a home.

The FHA flipping rule requires investors to hold properties for at least 90 days before selling to FHA buyers. This rule impacts property flipping plans by imposing additional scrutiny on sales within 91-180 days. Investors need to factor these timelines into their investment strategies.

Credit score requirements are low compared to most other loans. Your lender can accept a low down payment. Qualifying for an FHA loan can still be possible even if you have a bankruptcy or other financial issues in your financial history.

FHA appraisal and inspection checklist

Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.

Homes that may not pass an FHA inspection

Health and safety concerns: Properties with potential health and safety hazards, such as lead-based paint, asbestos, or mold, may not qualify for an FHA loan.

Major structural issues that are common FHA red flags include cracked or crumbling foundations, deteriorating roofs, and water damage. Other red flags that appraisers look for include: Missing handrails. Cracked windows.

The property needs to be free of known hazards that affect health and safety, the home's use, or may affect the structural soundness of the house and its marketability. These include, but are not limited to: Toxic chemicals. Radioactive materials.

While FHA loans can be much more forgiving compared to other types of loans one of the reasons an FHA application is declined is due to high debt-to-income ratios. Most lenders ask the total amount of monthly credit obligations, including the mortgage, should be no higher than 43 percent of gross monthly income.

If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.

What is the FHA 12 month rule? ›

FHA First Mortgage

Borrower must have owned property for 12 months AND if encumbered by a mortgage made payments for the last 12 months within the month due.

With exceptions, FHA won't accept a loan applicant who has had a foreclosure within the prior 3 years. Sub-prime lenders may have a 3-year rule for their best credit grade, but the period scales down by degrees and might be only 1 year for the lowest grade.

The largest concern sellers have with FHA loans is the appraisal/inspection process. FHA loans have the reputation of having strict requirements for appraisals and inspections. The FHA has what they call 'Minimum Property Requirements,' if a property doesn't meet even one of them, financing falls through.

Credit Score & Down Payment Requirements for FHA Loans

Those with scores below 500 are not likely to qualify for an FHA loan. Borrowers must have at least two established credit accounts such as credit cards or other monthly payments, in order to prove responsibility with debt.

FHA Loan: Cons

Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.

The state of your credit will be an important factor in determining your eligibility for an FHA loan. If you've been through foreclosure in the last three years, or bankruptcy in the last two, you will not meet FHA qualifications and are not a candidate for an FHA loan.

Building issues. Structural problems and defects, including any signs that the property has foundation damage or wall damage. The inspector may, for example, take a look at any water marks on the walls or ceiling, or search for cracks in the foundation. Accessibility concerns.

FHA loans have the reputation of having strict requirements for appraisals and inspections. The FHA has what they call 'Minimum Property Requirements,' if a property doesn't meet even one of them, financing falls through. This is above and beyond what a typical appraisal does – determine the property's market value.