The Mortgage Underwriting Process Explained - Quicken Loans Zing Blog

If you’re looking to buy a home or refinance your current one, an FHA loan can be a good deal for a number of reasons. The low down payment option and more flexible credit guidelines can be very attractive if you’re in the right situation.

This post will go over the benefits and guidelines for getting an FHA loan so you can decide whether it’s the right loan product for you. First, we’ll touch on credit guidelines to know, and then we’ll break things down by your loan goals.

Credit Score for FHA Loan

The credit score necessary to get an FHA loan depends on what you’re using the loan for.

If you’re looking to get a home or do a rate/term refinance on your existing loan, you can qualify with a median FICO® Score of 580 or higher. It’s important to note that if you try to qualify with a credit score on the lower end of this range, you also have to have a low debt-to-income ratio (DTI). DTI is a ratio of your monthly expenses compared to your monthly income. This can be measured two ways: on the front end – before the mortgage payment is taken into account – and on the back end, after the potential mortgage payment is added.

In order to be approved with a 580 FICO Score, you need to have a DTI of no more than 38% before the house payment and 45% after it’s added in. If you’re looking to purchase, this could impact the amount you can afford.

In order to take cash out with an FHA loan, you need a median FICO Score of 620 or higher. With a higher credit score, you’re able to have higher DTI levels. This could enable you to purchase more house because your higher credit score shows FHA that you’re a well-qualified buyer.

These are the 2019 FHA loan credit requirements, but these guidelines can change, and other lenders may have their own standards.

Buying a Home with FHA

If you’re getting an FHA loan to purchase a home, you can have a low down payment in addition to the credit advantages mentioned above. You need a down payment of only 3.5% in order to qualify.

If you’re getting the down payment as a gift from someone, you don’t have to contribute any of your own funds. Additionally, if you’re buying the primary residence of a relative, fiancé or domestic partner, the down payment can be in the form of a 3.5% gift of equity. A gift of equity is a discount on the sale price given to immediate family.

Quicken Loans also accept grants from organizations and government entities that provide homeownership assistance. Rent credits can also be used toward your down payment if you’re in a rent-to-own situation.

Rate/Term Refinance and FHA Streamline

You can also use an FHA loan to lower your rate or change your mortgage term in a refinance. This could enable you to lower your mortgage payment or pay off your home faster.

If you have an existing FHA loan that you’re refinancing, you may be able to take advantage of an FHA Streamline. This could enable you to refinance while also requiring less documentation, which could help avoid some of the hassle of finding paperwork.

An additional benefit of the FHA Streamline is that while most loans require a certain amount of equity in order to lower your rate or change your term, you may be able to refinance even if you owe more than your home is worth.

Finally, the Streamline option allows you to take advantage of lower up-front and annual mortgage insurance premiums (MIP). We’ll have more on those later.

FHA Cash-Out Refi

When getting an FHA loan, you can convert more of your existing equity into cash than you would be able to with a cash-out refi under many other options.

With an FHA loan, you can take cash out while leaving as little as 15% equity remaining in your home. That translates to more money to pay off high-interest credit card debt, boost a college or retirement fund, or make home improvements.

What You Need to Know About Getting an FHA Loan

The benefits of an FHA loan can be a pretty big deal, but there are still things you should know before signing on the dotted line.

You’ll Pay Mortgage Insurance

The first thing to be aware of with an FHA loan is that you’ll have both up-front and annual MIP. The mortgage insurance helps compensate for the lower credit score requirements and helps compensate the FHA if you default on your loan.

MIP rates are set by the federal government. If you were to take out a loan today, the up-front premium would be 1.75% of the loan amount. This up-front premium can be rolled into the loan amount if necessary.

You’ll also have an annual premium split into 12 equal monthly payments. The percentage for this depends on the size of your down payment, but if you make the minimum 3.5% up-front investment, the annual rate is 0.85% of the loan amount if you have a mortgage term greater than 15 years and a loan amount of $625,500 or less.

If you make a down payment of less than 10%, mortgage insurance remains for the life of the loan. If you make a down payment of more than 10%, you pay it for 11 years. One thing to note is that if you have a FICO Score of 620 or higher by the time you get to 20% equity in your loan, you can refinance into a conventional option and never pay for mortgage insurance again on that home.

There’s also an advantage with FHA Streamlines here. When you refinance one FHA loan into another under the Streamline, the up-front premium is 0.1% of the loan amount and the annual premium is 0.55%.

FHA Appraisals

FHA has its own special appraisal requirements that are slightly different from those for other mortgage loans. An appraiser’s job is to place a value on the home but also make sure the house is safe and move-in ready.

Most of the requirements are pretty standard and apply to any appraisal. For example, the electricity has to be on, and the water has to be running. There can’t be structural defects like exposed floorboards or holes in the roof.

What sets an FHA loan apart is if you have a house built before January 1, 1979. If the house has lead paint, anything that’s chipping will need to be dealt with due to the risk of lead poisoning.

There’s much more on FHA appraisals in this article.

If you think an FHA loan might be right for you, you can apply online with Rocket Mortgage® by Quicken Loans®. You can also call one of our Home Loan Experts at (800) 785-4788. If you have any questions, you can let us know in the comments below.

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This Post Has 399 Comments

  1. My wife and I have several credit card balances amounting to around $12,000, plus two auto loans. My bills are current and I have no delinquencies, but the maxed out credit cards have brought down my credit score.

    I will soon be in a position to pay off ALL of my accounts (around $45,000 including the cars). I have around $70,000 coming to me and I am looking for a FHA 3.5 % down mortgage to purchase a $150,000 house.

    After I pay everything off and have zero debt, do I have to wait at least a month for everything to show up on my credit bureaus? Or can Quicken Loans arrange for a re-score to get things moving sooner?

    1. Hi Dave:

      Every situation is different, but there’s a chance we can help you if you’ll have documentation supporting all these payoffs. I suggest talking to one of our Home Loan Experts at (888) 980-6716 as they can go over your situation and see if there’s anything we can do to get the ball rolling a bit sooner for you. We would love to work with you to go over your options for the mortgage. Have a wonderful evening!

    1. Hi Matthew:

      While we don’t offer any grants or down payment assistance ourselves for first-time home buyers, a good place to start looking is the Department of Housing and Urban Development (HUD). They maintain a list of programs available in your state or territory. We also have a first-time home buyer course, Zing University. If you’re interested in moving forward, you can get started online with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Hope this helps!

    1. Hi Terri:
      The minimum credit score needed for an FHA mortgage is 580. However, every situation is different, and multiple factors will be considered. If you’d like to explore your refinance options, you can talk with one of our Home Loan Experts by calling (888) 980-6716.

  2. I have a credit score of 543 and 601 right now . I don’t have a long credit history but I recently purchased a vehicle back in June . I have one secured credit card from capital one since Aug. of this year . I’m on child support right now . I owe back c.s ($2700) that I’m catching up . I have the Attorney General increase my payments to pay it back faster . My take home pay is 4000 . The house Im looking at is 73k . Do I need to wait until my scores are higher or can I apply to QL now ?

    1. Hi Nathaniel:

      We take the median FICO® score from Equifax, Experian and TransUnion. That score has to be at least 580 or higher before we can help you with an FHA loan. It does sound like you’re doing the right things to get your credit in shape, but every situation is different. I’m going to recommend you check out QLCredit. You can get your free VantageScore® 3.0 credit score and report every two weeks. We also have this article with some general tips on building your credit back up. Finally, I recommend speaking with one of our Home Loan Experts as they may be able to help you come up with a personalized game plan to get you where you need to be in order to qualify. You can reach out to them at (800) 785-4788. Hope this helps!

  3. Hi I was wondering how long do I have to wait to buy my first home I just got my discharge papers from going Bankrupt 2 month ago and I would like to start working on buy a home in the next year or so thank you

    1. Hi Edwin:

      We would have an option for you as soon as one year after discharge and you would have more options after two or three years. Hope this helps!

  4. Does QL do FHA 203k loans? If so what are the odds of being approved with a 638, 696, 620. My credit report has had many things inaccuracies. I have been fighting for a year in a half now. It’s literally been a mess! I’ve had my credit completely erased, I’ve called and found out that OUR CREDIT REPORTING AGENCIES AREN’T EVEN BASED IN THE USA! I get it, we out source, however I couldn’t even help my husband because I have to follow the rules of their country, not ours. Most countries don’t use CREDIT REPORTING! ITS COMPLETE NONSENSE. Anyways, I make $86,000 DTI is 15%. House is $150,000. Foreclosure in really great shape but has chipping paint so has to be a 203k. We literally have to get financing ASAP!! Like a week ago. We have to have everything done and finance to the seller b4 July 21. Is this something that QL can do?

    1. Hi Jessica:

      Unfortunately, we don’t offer FHA 203K loans. I’m going to recommend you maybe speak with one of our Home Loan Experts. Every situation is different. It may be possible to get the house and then complete the repairs and have them reinspected. It’s not always allowed, but it’s worth looking into. You can give us a call at (888) 980-6716. Thanks!

    1. Hi Janice:

      We don’t talk about which FICO models we use because it depends on the bureau and it gets updated and a lot, so anything we might tell you would be soon out of date. I can tell you that we use a tri-merged credit report from Equifax, Experian and TransUnion. For an FHA loan, between the three bureaus, the lowest median score of all borrowers on the loan must be at least 580. If you would like to go over your options, I recommend speaking with one of our Home Loan Experts at (888) 980-6716. Hope this helps!

  5. Would I qualify for a cash out refi $10000 with credit score of 609 est value is 85000 current loan amount 55000? Home is in need of some repairs and don’t have $10 grand laying around.

    1. Hi Melissa:

      I see you’re working with one of our partners. I’m going to have someone reach out and go over how we can you to your goals. Thanks!

  6. hi mt name is middi i thank my credit score is 626 i want to buy a fixer upper and have my brother -in law do construction on it, and after rent it out . i have a car payment that i have paying it before it is due every month on the third. with just me geting the loan n not my husband co-sign would i qualify thank you god bless

    1. Assuming you’re right about your credit score, you would qualify based on your credit, but there’s more to qualification than that. If you would like to go over your options, you can do so online through Rocket Mortgage or by speaking with us at (888) 980-6716. Hope this helps!

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