FHA Loan Overview

When it comes to buying a home, there are many different ways to finance your purchase. The type of property you’d like to purchase, the amount of money you have to put down, your credit score, and income all play critical factors in deciding what mortgage will work the best for you. For many Americans an FHA (Federal Housing Administration) loan is an affordable and accessible choice. An FHA mortgage is a government backed loan sponsored by the Federal Housing Administration. Here is everything you need to know about FHA loans.

What is an FHA Loan?

FHA mortgages are loans guaranteed by the Federal Housing Administration, or FHA. This loan type is designed to provide affordable mortgage loans to homebuyers. These loans are often a good fit for for first-time, or lower income home buyers. Easier credit guidelines and down payment requirements offer wider access. However, it’s important to know that you don’t have to be a first-time home buyer in order to leverage the benefits of an FHA loan.

What are the Requirements for an FHA Loan?

In order to qualify for an FHA loan, you must minimally meet a set of requirements, which include:

A minimum down payment of 3.5%
Steady income and employment
A debt-to-income ratio should not exceed 43%
The home must be your primary residence
You cannot have had a foreclosure in the past 3 years

What Type of Down Payment is Required for an FHA Loan?

Down payments are an important consideration when it comes to purchasing a home. The amount of money you are able to pay for your down payment may drastically change your interest rate and subsequent monthly payments. Few mortgage programs have minimum down payments lower that 5%, an FHA is one of them. If your credit score is over 640 you only need to put down 3.5%.

What Credit Score Range is Needed for an FHA Mortgage?

In order to qualify for an FHA mortgage with Standard Mortgage you will need a minimum credit score of at least 640. A higher score will offer better interest rates and down payment requirements. However, this low threshold allows you to start the home buying process sooner if there are some credit issues you are working on.

What is FHA Mortgage Insurance?

To offset a lower credit score, you may have mortgage insurance premiums associated with your loan. FHA loans require two types of mortgage insurance payments. The first is an upfront mortgage insurance premium (UFMIP) equal to 1.75% of the loan amount. This is either paid when you close your loan or rolled up into the loan amount and paid each month. The type of mortgage insurance is a monthly mortgage insurance premium paid as a part of your regular mortgage payments (MIP).

How Do Gift Funds Work for an FHA Loan Down Payment?

FHA allows your down payment to be comprised of 100% gifted funds. This means that money gifted from the borrower’s family members can be applied towards your down payment. If you are getting gifted funds for your down payment, contact your loan officer to ensure you follow the appropriate process to receive these gift funds.

What is the Debt-to-Income Ratio for an FHA Mortgage?

Your debt-to-income ratio is calculated by comparing your before-tax income to your obligations, or debt payments. An FHA loan allows for a higher DTI ratio than many other mortgage programs. Your housing ratio should not exceed 31%. This ratio includes the principal, interest, taxes, insurance, and housing HOA dues. Furthermore, your total monthly debt payment should not exceed 43%. This ratio includes your total mortgage payment as stated above plus any auto or bank loans, credit card debt etc.

NON-QM LOANS

What is a non-qm loan?

A Non-QM or Non-Qualified Mortgage loan is designed for borrowers who don’t meet the strict guidelines of traditional mortgage programs such as Fannie Mae, Freddie Mac, FHA, or VA loans.

Instead of focusing on standardized documentation like tax returns or W-2s, Non-QM loans look at alternative income verification methods, such as bank statements, 1099s, or business financials, to determine your ability to repay the loan.

These loans are modern solutions for high-quality borrowers who have unique financial structures.

COMMON NON-QM BORROWERS INCLUDE:

Self-employed business owners and freelancers
Independent contractors or gig workers
Real estate investors with rental income
Borrowers with complex or fluctuating income sources

TYPES OF NON-QM LOANS WE OFFER

BANK STATEMENT LOANS

Who It’s For:
Self-employed borrowers and small business owners who earn steady income but have tax write-offs that reduce taxable income.

How It Works:
Instead of W-2s or tax returns, we use 12 to 24 months of personal or business bank statements to calculate your average monthly deposits. This gives a more accurate picture of your true earning power.

Benefits of Bank Statement Loans:

Qualify based on actual cash flow, not adjusted gross income
No W-2s or traditional income documentation required
Ideal for freelancers, consultants, and entrepreneurs
Can be used for primary homes, second homes, or investment properties

Typical Requirements:

10–20% down payment
Stable deposits over the review period
Good credit and demonstrated repayment ability

1099 INCOME LOANS

Who It’s For:
Independent contractors, sales professionals, rideshare drivers, real estate agents, and other workers who receive IRS Form 1099 instead of a W-2.

How It Works:
You can qualify based on one or two years of 1099 forms and your year-to-date earnings. There’s no need to provide full tax returns or employer verification.

Benefits of 1099 Loans:

Streamlined documentation process
Uses your gross or net 1099 income
Recognizes the reliability of contractor and commission-based earnings
Often faster underwriting than traditional mortgage loans

Whether you’re a seasoned contractor or new to self-employment, a 1099 loan helps you access the financing you deserve without unnecessary red tape.

DEBT-SERVICE COVERAGE RATIO (DSCR) LOANS

Who It’s For:
Real estate investors looking to purchase or refinance rental properties based on the property’s income, not personal income.

How It Works:
Instead of verifying your personal earnings, DSCR loans evaluate how well a property’s rental income covers the mortgage payment.
The formula: DSCR = Gross Rental Income ÷ Monthly Loan Payment

If the ratio is 1.0 or higher, the property generates enough cash flow to support the loan.

Benefits of DSCR Loans:

No personal income documentation required
Available for short-term, long-term, or multifamily rentals
Allows ownership in an LLC or business name
Flexible options for cash-out refinance and portfolio growth

Example:
If your property rents for $3,000/month and your mortgage payment is $2,500/month, your DSCR is 1.2, a ratio strong enough to qualify.

DSCR loans make it easier for investors to expand their portfolios and unlock equity without traditional income limits.

PROFIT & LOSS (P&L) STATEMENT LOANS

Who It’s For:
Established business owners whose CPA-prepared profit and loss statements show the true health of their business, even if tax returns show a lower number due to deductions.

How It Works:
You can qualify using a 12- or 24-month P&L statement verified by a licensed CPA. This method allows lenders to assess your income without needing full tax returns or bank statements.

Benefits of P&L Loans:

Highlights your business’s profitability rather than taxable income
Simplifies qualification for established companies
Ideal for borrowers with consistent cash flow and good reserves

A P&L loan reflects the true strength of your business and helps you qualify based on real-world performance, not tax adjustments.

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Frequently Asked Questions

ARE NON-QM LOANS SAFE?

Yes. Non-QM loans follow responsible lending practices and are fully regulated. They’re simply designed for borrowers with unique income situations.

DO NON-QM LOANS HAVE HIGHER INTEREST RATES?

Rates are typically slightly higher than traditional loans, but the flexibility they provide often outweighs the difference, especially for borrowers who can’t qualify otherwise.

CAN I REFINANCE A NON-QM LOAN LATER?

Absolutely. Many borrowers refinance into conventional loans after building more income history or improving their credit.

DO I NEED PERFECT CREDIT TO QUALIFY?

No. Non-QM loans allow for a wider range of credit profiles.

Mortgage rate options

Every homebuyer has unique needs. Standard Mortgage strives to meet them with quality service and individual attention. We pride ourselves in giving you the mortgage information, loan options, and convenient assistance you’re looking for, including what to expect when you apply for a mortgage loan. With a variety of loan programs and an established network of lenders behind us, we help you find the loan that best suits your needs and at a competitive rate.

Adjustable Rate Mortgages (ARM)

An adjustable rate mortgage (ARM) is a mortgage product where your interest rate may change at specified intervals over the life of the loan based on a predetermined index and margin.

Conventional Loans

A conventional loan must meet nationally standardized guidelines, such as income, credit, and property requirements. These mortgages are subject to loan limits set by the Federal Housing Finance Agency.

Federal Housing Administration (FHA)

The Federal Housing Administration (FHA) - commonly referred to as HUD - issues loans that provide affordable mortgages to the average homebuyer.

Fixed Rate Mortgages

A fixed-rate mortgage is the most common type of mortgage product. Your monthly interest and principal payments do not change over the life of the loan.

JUMBO

A jumbo loan, or non-conforming mortgage, is for homebuyers who expect to borrow more than $647,200* for single-family residences.

*this loan amount may vary based on geographic location

USDA Rural Development

A USDA Rural Development loan helps rural home buyers purchase a home with no down payment, low fixed rates, simple credit requirements, and the guarantee of the federal government.

Veterans Administration (VA)

Veterans Administration loans help veterans — including active duty service personnel and certain categories of spouses — finance the purchase of their homes with favorable loan terms.