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FHA loans not limited to first-time buyers

Posted on October 19 By Michele Lerner

Question: My friend recently got an approval for an FHA loan, but I was surprised because I thought you had to be a first-time buyer to get an FHA mortgage. Also, she makes more money than I do, so I assumed her income was too high. Please tell me what I need to do to qualify for an FHA mortgage.

Answer: FHA loans, insured by the Federal Housing Administration, have been around since the 1930s. Originally designed to help low- and moderate-income families afford to buy a home, the program has in recent years become widely popular among all income levels because it is one of the few programs available with a low-down-payment requirement. Buyers can make a down payment of as little as 3.5 percent and the rules allow all of the funds to be a gift from family members.

FHA loans are not limited to first-time buyers. In fact, you can use an FHA loan to buy a home regardless of whether you owned a home in the past, and you can refinance your home with an FHA loan whether or not your current mortgage is an FHA loan or a conventional mortgage.

FHA loans, while not limited by the borrowers' income, are limited by the home price. Maximum loan limits are set by Congress yearly and vary by county, with the maximum in many housing markets set to $417,000. In areas with expensive housing, FHA loan limits (in place through December 2013) are as high as $729,750. In areas with less costly housing, FHA loan limits are as low as $271,050.

In order for you to qualify for an FHA loan, you'll need to meet the minimum FHA credit standards of a FICO score of at least 580. However, most lenders require a credit score of 620 or 640 or above to approve a loan.

While you don't have to meet any specific income requirements, you do have to meet the debt-to-income ratio guidelines of a lender, usually a maximum of 45 percent, but sometimes less. Since not all lenders have the exact same guidelines, if you don't meet the qualifications of one lender, you should consult other lenders.

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