Rules for FHA Mortgages

by Candace Webb, Demand Media

    Once you find the house of your dreams, the work begins. Now you have to get a mortgage loan. Many homebuyers turn to the Federal Housing Authority as their primary lender. An FHA loan is straightforward and backed by the U.S. government. Following the FHA loan rules will help get your loan approved more quickly.

    Insurance

    The FHA requires you to obtain and maintain homeowners insurance on any home that it finances for you. The FHA is concerned that if something happens that makes your house unlivable and you cannot afford to pay for repairs, you will abandon the house and the loan that goes with it. By requiring you to carry homeowners insurance, the FHA ensures the house repairs will be paid for and you will be more inclined to pay the mortgage.

    Loan Limits

    The FHA website lists each state and divides the states by county to let you know what the loan limits are in your area. If the house you want costs more than the FHA will approve, it doesn't mean you have to walk away from the deal. But you'll probably have to make a larger down payment.

    Required Information

    The FHA wants a mountain of information about you and your finances before it will approve a loan. Required information includes: your address for the past two years, your Social Security number, your income before taxes, the company names of your employers for the past two years, bank account information, debts, value of any personal property or real estate you own and copies of your tax returns for the past two years.

    Debt to Income Ratios

    The amount of money you make, compared with the amount of money you owe, is one factor used to calculate whether you are a good credit risk for an FHA home loan. Before the FHA lends you money, it wants to be sure you are not buying a home you cannot afford. The general rule of thumb, according to the FHA website, is not to have your mortgage payment take up more than 29 percent of your gross monthly income. The mortgage payment, for this purpose, includes the payment, homeowners insurance and all property tax payments due each month.

    If you have an awesome employment history and credit rating, the FHA will sometimes allow a larger percentage of your income to go toward your mortgage payment.

    Credit Rating

    The FHA takes a close look at your credit rating. Typically, the FHA will not even discuss a loan with you unless you have two lines of credit already open and in good standing. If you made timely payments on a Chapter 13 bankruptcy for the past year, the FHA may consider you for a mortgage. The same applies to applicants who were foreclosed on at least three years ago.

    Federal debts, such as federal tax liens and student loans, will disqualify you from an FHA loan. Civil judgments on your credit must be paid off before the closing date or the FHA loan will not be approved.

    Minimum Down Payment

    The FHA requires a minimum down payment of 3 percent of the total purchase price.

    Appraisals

    The FHA's inspection requirements are stringent. If you and the seller reach agreements on such details as loan origination fees, loan discount programs or assistance with closing costs, the appraiser is required to report such concessions. Basic requirements for an FHA appraisal include a minimum two-year roof life, moisture-free basement and proper electrical and heating installation.

    About the Author

    Candace Webb has been writing professionally since 1989. She has worked as a full-time journalist as well as contributed to metropolitan newspapers including the "Tennessean." She has also worked on staff as an associate editor at the "Nashville Parent" magazine. Webb holds a Bachelor of Arts in journalism with a minor in business from San Jose State University.