There is a huge misconception that many potential mortgage borrowers have. Many believe that the only borrowers who can qualify for FHA loans are first-time home buyers. This is not true. The FHA recently conducted a study in 2019 and found 82 percent of people who received FHA loans are first-time borrowers, so many people may not be aware that they may qualify for an FHA loan.  

This article will examine the criteria for FHA home loans and why people find this type of loan to be one of the most attractive on the market.  

Criteria for FHA Loans -

Is FHA Just for First-Time Homebuyers? - 

If you have had a mortgage in the past, you may still qualify for an FHA loan. One of the biggest criterion for initial qualification is that you are seeking a loan for a primary residence. The FHA program does not exist to help people buy a second home. 

Easier To Qualify -

FHA loans provide easier qualification requirements than traditional bank mortgage loans. The reason FHA loans allow for easier qualification is that the U.S. government will cover the losses of the lender if you default on your loan. You do, though, need to have a credit history. This means you have to show you have been extended credit in the past that you were required to make payments on.  

The basic loan requirements in 2019 for a FHA loan are: 

  • A credit score of at least 500

  • A debt-to-income ratio lower than 46 percent

  • Mortgage insurance premium purchase

  • Proof of two-years' worth of steady income with the same employer

  • 18 years or older

  • The home willl be your primary residence


You can determine your debt-to-income ratio by dividing your monthly after-tax pay by your monthly debt payments. If you are just about to finish paying off a larger debt in a few months, the lender may leave that payment off of your DTI ratio computation. 

People with late payment histories can qualify for FHA loans, but they will need to show a solid and on-time payment history in the past 12 months. 

Amazingly, even if you have had a bankruptcy or foreclosure in the past, you may still qualify for an FHA loan, if you meet current requirements. In the case of Chapter 7 bankruptcies, the bankruptcy has to have been two or more years ago, and you either re-established your credit or stayed free of debt obligations in that time frame. 

In the case of foreclosures, the bank will examaine the circumstances on a case-by-case basis. Many of us lost our homes in the Great Recession due to the loss of a job, bank fraud with loan modifications or due to situations in which borrowers owed more than their home's current cost. These may be considered extenuating circumstances. It is important to save all documentation that proves your claims. 

You may have even had prior federal debts, monetary judgments for past due credit or had collections activity, but you may still qualify for an FHA loan. The lender is required to ensure you have paid off, resolved or settled the debts before you can close on the house. 

Down Payments Can Be a Gift -

FHA loans have some of the lowest down payments available. For people with FICO credit scores over 580 points, they only need a down payment of 3.5 percent. For those with FICO scores from 500 to 579 points, a down payment of 10 percent is required. The nice thing is that this down payment may be a gift from a family member, a friend or even from a charitable institution. Some communities are so eager to fill the many vacant homes in their area with new homeowners that they will gift you the down payment. 

Is FHA just for first-time homebuyers? Absolutely not. You must be purchasing the home as your primary residence, and you must meet all of the other qualification criteria. If so, you will reap the benefits of an FHA loan, which include easier qualification standards as well as lower down payments.