FHA Loan Questions

Below are some of the most frequently asked questions and answers about FHA loans:

Are FHA loans only for first time home buyers?
No, FHA loans are not only for first time home buyers.  You can be a repeat home buyer, and still get approved for an FHA loan.  You can be a second time home buyer, third time home buyer, it does not matter how many times you have owned a home before in the past. Keep in mind that FHA loans are only for primary residences.

Are there any income limits on FHA loans?
No, there are not any limits to how much money you can make.  The only factor your income plays is in your debt-to-income ratio, and what appears to be your ability to repay the loan. If you have a lot of other debts, or too little income to make the payment for the loan you seek, then you might be denied. The ratio of your debt-to-income should not exceed 43%.

Can I buy an investment property with a FHA loan?
The FHA strictly insures loans for primary residences. No loans can be issued for an investment property or any non-owner occupied home.

Can I get a FHA loan with medical bills in collection?
Yes, medical bills and medical collections will not interfere with your ability to get a FHA loan. They do not cause your loan application to be denied , nor do they factor into DTI ratios.

Can I get a FHA loan after a short sale?
Yes, and the FHA usually would require that you wait 3 years after a short sale to get a new FHA loan. However, in August, 2013 they announced a new policy that will allow someone to get a FHA loan after only 12 months (if they meet the standard loan qualification guidelines, of course). The waiting period depends on the specific borrower, but many can now qualify after only 12 months, as long as they pass for credit, have no late payments in the past year, and sufficient income to qualify.

Can I get a FHA loan if I have student loans?
Student loans will be treated similar to any other debts, such as auto loans, credit cards, or other outstanding debts that show on your credit report. The way that the can have an effect on your potential for a loan approval is the monthly debts contribute to your debt-to-income ratios. Your combined DTI ratio (also known as your “backend debt-to-income ratio”) can not exceed 43%. So if you make $4,000 a month, your maximum total debts, including your new mortgage payment, must not exceed $1,720/month.

Can I get a FHA loan with a judgement?
The answer to this questions is rather complex. Certain types of judgements that show a lack of ability to manage debts, or a blatant disregard to pay financial obligations can prevent your from being approved for a FHA loan. Any judgement that occurred which was not based on irresponsibility may be overlooked. We recommend starting here to learn more about the HUD/FHA requirements related to judgements on credit reports.

Can I get a FHA loan for a mobile home?
The rules for financing a manufactured/mobile home depend upon the individual home and how it was manufactured. If you are wanting to get a FHA loan for a mobile home, learn about the rules on the official HUD/FHA website.

Can I transfer the loan (are FHA loans assumable)?
A significant advantage of FHA loans is that they are assumable. This means that if you sell your house, the FHA loan can be transferred to a qualified buyer. The fact rates have been low and are expected to rise means this could increase the appeal of your home to a buyer. If they might be able to assume your loan at a much cheaper rate and payment than if they acquired separate financing could cause them to be more inclined to purchase your home. This is just one benefit of the assumability of FHA loans. Others could be if you simply wanted a family member, friend, or roommate to take over the loan.

Do FHA loans allow cosigners?
Yes, FHA loans allow you to have a cosigner for your home loan. A cosigner is not the same thing as a co-borrower. A co-borrower shares the same rights and obligations as you. A cosigner simply is just signing on to help you qualify, but does not have the same property rights. However, they do have the same financial responsibility to pay the mortgage payments, otherwise defaulting on the loan will have adverse affects to their credit (as well as yours). This would include late payments or a foreclosure in the event of serious delinquency.

Do FHA loans have prepayment penalties?
No, there are absolutely no prepayment penalties on any FHA loans.

Do FHA loans require inspection?
No, FHA loans do not require an inspection. They require an appraisal for home purchases and cash out refinances (not streamline refinances though). There are some instances where they might require an inspection for a certain home, but it is not a standard requirement. An instance in which an inspection may be required is if the appraiser notices something about the property that needs further review. Or, anything that may be a health or safety hazard.

Do FHA loans vary from bank to bank?
There are set requirements set forth by the FHA regarding what will qualify to be FHA-insured. These requirements must be met or an FHA approved lender will not approve and fund the loan. Past the basic requirements, each mortgage lender, bank, or credit union, has the prerogative to set their own guidelines. One lender may require a higher credit score than others. One might want to see lower DTI ratios. So yes, there is a degree of variance between FHA lenders.