Credit

• When purchasing a home, banks look at four things: income, debt, money for move in and credit. While all of these pieces of information have to fit together in order to create a workable scenario for an FHA loan, one of the most important factors is an individual's credit history. For an automatic approval for an FHA loan, the standard requirement is a credit score of 620. However, lower credit scores can be approved with the proper documentation.
  
  

Down Payment

• As of 2009, the FHA minimum down payment required is 3.5 percent of the purchase price. The minimum down payment can be given to a purchaser as a gift from a family member, providing that the funds can be sourced to prove their validity. As a requirement of the Patriot Act, bank statements from all involved parties must be obtained to source the down payment funds.
  
  

Income

• The amount that an individual can borrow is based on his income. Acceptable sources of income are salary, child support payments, self-employment income, rental property income or disability income. When FHA underwrites a loan, they base their initial findings on gross income, which is the income received prior to income taxes being subtracted.
  
  

Debt

• Another major factor in qualifying for an FHA loan is the purchaser's debt. The total amount of debt is subtracted from the gross income to determine the monthly payment the purchaser can afford. Having too much debt or a bad repayment history can greatly affect the amount an individual can borrow or disqualify her completely.
  
  

Time Frame

• Obtaining an approval for an FHA loan does not happen overnight. Once all documents verifying income, debt and credit histories are obtained, the loan file must be sent for final approval from an FHA underwriter. This process can take up to two weeks for completion. From start to finish, expect to wait a total of 30 days for an FHA loan approval. Once you are approved, home shopping can begin.
  
  

Misconceptions

• A common misconception is that FHA makes loans to consumers. This is not the case. FHA is regulated by the Department of Housing and Urban Development, or HUD, to insure the loans that private lending institutions make to consumers to help the bank recover losses should the consumer default on the mortgage. Part of a consumer's monthly payment goes into a mortgage insurance fund that provides a hedge of protection from major losses for lenders.
  
  

Expert Insight

• It is best to buy when current market rates are low, since FHA loans offer the current market rates for home buyers. It is possible to pay some additional fees with an FHA loan to create a permanent buy down of the rate or a temporary buy down. Always make sure that you understand how the interest rate affects your monthly mortgage payment.