FHA Eligibility Guidelines for Borrowers in 2014

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This article explains the basic eligibility requirements for FHA loans in 2014. The information presented below was updated and fact-checked on April 1, 2014 and should remain current through the end of the year.

Reference: The reference document for this article is HUD Handbook 4155.1, Chapter 4, Section A. This document is available online, and you can find it with a quick Google search. It is located on the HUD website, www.HUD.gov.

I'd like to start by dismissing a common misconception about FHA eligibility. This program is not limited to first-time home buyers. It may be well suited to first-time buyers in some cases. But it is not limited to this audience. Anyone who meets the 2014 eligibility criteria listed below could apply for an FHA loan, and potentially be approved. That includes people who have purchased homes in the past.

Who Is Eligible for the FHA Loan Program?

So, who is eligible for an FHA loan? The HUD handbook starts off with a discussion of age limits. Under the current guidelines, there is no maximum age limit for borrowers. But there is a minimum age requirement. The minimum age varies from one state to another. It is not enforced nationally, but at the state level.

Minimum Age

According to the HUD handbook, the minimum eligibility age for an FHA loan is the "age for which a mortgage note can be legally enforced in the state, or other jurisdiction, where the property is located." In many states, this age is 18. But it varies.

Credit Scores

Borrowers must also be "creditworthy" to be eligible for an FHA loan. Lenders are required to determine the creditworthiness of all borrowers who apply for the program. They do this through a process known as underwriting. The mortgage lender's underwriter must consider the borrower's income, assets, liabilities (debts), and credit history.

The underwriter must ensure that the borrower meets the minimum credit-scores guidelines set forth by HUD. Here are the cutoffs for FHA eligibility in 2014:

  • If the borrower has a "decision credit score" of 580 or higher, he or she is eligible for maximum financing under the FHA program. This means the borrower can make a down payment as low as 3.5%, receiving 96.5% in the form of lender financing.
  • If the borrower's credit score falls between 500 and 579, he or she must make a down payment of at least 10%.
  • The absolute minimum credit score for this program is 500. Borrowers with scores below 500 are not eligible for an FHA loan in 2014.

Keep in mind the mortgage lender can impose their own guidelines as well, and they often set the bar higher than the HUD minimum eligibility requirements. So you essentially have to meet two sets of criteria -- the lender's and the government's.

There are some exceptions to the eligibility rules for credit scores histories. Borrowers with insufficient credit histories can still receive maximum financing, as long as they meet the underwriting guidelines outlined in HUD Handbook 4155.1, Chapter 4, Section C.

Co-borrowers and Cosigners

The HUD handbook lists additional FHA eligibility requirements for borrowers and co-borrowers in 2014. For instance, borrowers and co-borrowers must take on the title to the property during the settlement process. They must sign all financial documents relating to the mortgage, after which they will be fully obligated for making mortgage payments.

The handbook also points out the difference between a co-borrower and a cosigner. A cosigner does not hold ownership interest in the home being purchased. While the cosigner must complete and sign all of the mortgage documents (with the singular exception of security instruments), cosigners are not responsible for repaying the mortgage debt.

For more details about co-borrowers and cosigners, refer to HUD Handbook 4155.1, Chapter 4, Section A.

Previous Delinquencies

Borrowers who are found to be delinquent on any type of federal debt, or have had liens placed against a property due to federal debts, are not eligible for FHA loans unless:

  • they fully satisfy the outstanding/delinquent accounts, or
  • they agree to a repayment plan with the federal agency to which they owe money.

Borrowers who have been delinquent (late) or defaulted (ceased making payments) on an FHA loan in the past must undergo a three-year waiting period before they meet eligibility requirements for another government-insured mortgage loan. The three-year period begins when the Federal Housing Administration pays the initial insurance claim to the affected lender.

Non-U.S. Citizens

It is a common misconception that borrowers must be U.S. citizens in order to be eligible for this program. U.S. citizenship is not required under current (2014) HUD guidelines. However, the lender is required to determine the borrower's residency status, and must obtain proper documentation to do so. This applies to borrowers with "lawful permanent resident alien status" as well.

Property Requirements

All of the 2014 eligibility requirements described above apply to borrowers and co-borrowers. But the Department of Housing and Urban Development also has specific criteria for the property being purchased. Those criteria have been covered in a separate section of our website.

In short, FHA will insure several types of properties, including detached residences, semi-detached residences (e.g., townhouses and terrace houses), multiplexes, row houses, and individual condo units. Condominium projects must be on HUD's approved condo list, which can be found online: https://entp.hud.gov/idapp/html/condlook.cfm

Refer to HUD Handbook 4150.2, Chapter 3 to learn more about eligible property types.

Where to Learn More

This article explains who is eligible for an FHA-insured mortgage loan in 2014. Please note that this is a general overview of standards and criteria. This list is not exhaustive, nor is it meant to be. To make this document more accessible, we have covered most of the key points while omitting some of the more obscure cases. To learn more about the basic eligibility requirements for this program, please refer to Chapter 4 of HUD Handbook 4155.1, or speak to a HUD-approved housing counselor.

Overview of Key Eligibility Requirements in 2014

We covered a lot of information in the previous section. So let's recap some of the key points. Here is a quick overview of FHA borrower eligibility requirements in 2014.

  • Loan applicants must meet the minimum age requirements for mortgage borrowers in the state where the property is located. In most states, the minimum age is 18 years old. Some states may have lower age minimums, so be sure to check your state's specific requirements. There is no maximum age limit.
  • You must have a "decision credit score" of 500 or higher. This is the absolute minimum score for basic program eligibility. If you want to qualify for the 3.5% FHA down payment minimum (which is what attracts most people to this program in the first place), you must have a credit score of 580 or above.
  • A "decision credit score" is the middle number when three scores are used, or the lesser of two scores when only two are used.
  • In addition to HUD's credit-score cutoffs mentioned above, borrowers must also meet the lender's criteria. Mortgage lenders can, and often do, set the bar higher than the federal government. In 2014, most lenders require scores of 600 or higher for FHA loan eligibility (though it's not a hard-and-fast rule).
  • If you are using a co-borrower, he or she must also be eligible for the program. Both the borrower and the co-borrower are required to sign all of the loan documents. They are both responsible for repaying the debt. As a result, both parties must meet the basic program standards and criteria.
  • Borrowers who have defaulted on government-backed home loans in the past might not be eligible for the FHA program. It depends on the amount of time that has passed since the default. Generally speaking, borrowers must wait at least three years before they can obtain another home loan through this channel.
  • Non-U.S. borrowers may obtain a government-insured mortgage through this program, as long as the lender can verify and document the applicant's residency status.
  • HUD also maintains eligibility standards for the borrower's debt-to-income (DTI) ratios. These ratios are a comparison between the amount of money you earn each month and the amount you spend on your various debts. You have two DTI ratios -- one that only considers your housing-related debt, and one that takes all of your debts into account. They are known as front-end and back-end debt ratios, respectively.
  • According to HUD Handbook 4155.1, Chapter 4, Section F, borrowers must have a back-end or total debt ratio no higher than 43% to be eligible for an FHA loan in 2014. The back-end ratio considers all recurring monthly debts, including the mortgage-related expense.
  • Front-end debt ratios are limited to 31%. According to the aforementioned handbook, "the relationship of the mortgage payment to income is considered acceptable if the mortgage payment does not exceed 31% of the gross effective income."
  • There are exceptions to the DTI rules. Borrowers with debt levels higher than those stated above may still be eligible for the FHA loan program, if the lender can document certain "compensating factors." An example of a compensating factor would be if the borrower has successfully paid mortgage payments equal to or greater than the estimated payments on the new loan. Other compensating factors include excellent credit scores, down payments of 10% or more, and significant cash reserves.

Disclaimer: We have made reasonable efforts to ensure the accuracy of this information. Even so, this article is not meant to be a replacement for the official program guidelines. If you would like to learn more about FHA eligibility requirements in 2014, please refer to the Department of Housing and Urban Development's website at HUD.gov. You should also be aware that HUD changes their program guidelines on a regular basis. Such changes are typically announced with the publication of a "Mortgagee Letter." So there is a chance this article will become outdated with time. Please do not make any financial or home-buying decisions based solely on the information presented above. Consider speaking to a HUD-approved housing counselor before making any decisions about the program. These counselors are available nationwide, at little or no cost.