FHA loan requirements

Before we get into the nitty-gritty details, here is a summary of the requirements for FHA loans. You need:

  • A credit score of 500 or above. (You can check your score for free online.)
  • A debt-to-income ratio of 50% or less.
  • A 3.5% down payment (if your credit score is at least 580).
  • A 10% down payment (if your credit score is between 500 and 579).

To qualify, the property must also be used as your primary residence and meet the FHA’s minimum property requirements, which we’ll get to in a moment.

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FHA loan qualifications

In order to qualify for an FHA loan, there are a few requirements you'll need to meet.

More: FHA loan vs. conventional loan

Are FHA loans only for first-time homebuyers?

FHA loans are not just for first-time homebuyers. They can be used by anyone who meets the requirements, whether it is your first home or your 10th.

However, it is a common loan type for first-time homebuyers since they are more likely to have a lower credit score and limited funds. For example, you might need a credit score of 620 to qualify for a conventional mortgage.

FHA loans are also frequently used by current homeowners who want to tap into their equity with a “cash-out refinance.”

What documentation is required for FHA loans?

When applying for an FHA loan, providing the correct documentation is crucial.

The paperwork you need will depend on your particular situation. Here is some of the information your lender could ask for:

  • Tax documents, such as W-2 forms and tax returns, for the past two years.
  • Your Social Security number and other personal information.
  • Recent pay stubs, bank statements and retirement account statements.
  • Recent bills and statements, landlord contact info or anything else to make up for a thin credit history.
  • Homeowner paperwork (if refinancing).

It can be a lot to keep track of, but your FHA lender will walk you through the process to make sure you’re not missing anything.

FHA home requirements or property standards

If you meet all of the financial requirements above, your next step is to be sure that the property you want to buy meets FHA standards.

The FHA requires an appraisal to ensure the home is a smart, safe investment. Some of its standards protect you from unexpected repair and maintenance costs — but they also protect the lender and the FHA.

Companies take on extra risk when they lend to people with low credit scores. Your lender and the FHA will want to be sure the house is actually worth what you are paying for it, because if you were to default on your loan, they need to be able to sell the home to recoup their costs.

Here are the requirements that must be met:

  • The property must be free of physical deficiencies that affect the structural integrity of the home (e.g., issues with the electricals, heating, roof, attic, etc.).
  • The price of the property must be low enough to accommodate the FHA’s loan limits (which in 2021 range from $356,362 to $822,375, depending on your county).
  • The property can’t have been purchased by someone else within the past 90 days (i.e., no “flipped” houses).
  • The property must be used as a principal residence within 60 days of closing.
  • The property title must be in your name (or the name of a living trust).

FHA loan income requirements

Are there income limits to FHA loans?

There are no minimum or maximum income limits that would make you ineligible for an FHA loan. All incomes are welcome.

Instead of requiring a minimum income, your approval is based on other factors that demonstrate your ability to repay the loan. Things like:

  • How much debt you have compared to your income.
  • Your record of repayment.
  • Your employment status and history.

Your lender and the FHA don’t care so much about your total take-home pay. They just want proof that you will have enough money left at the end of the month to make your mortgage payments.

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What is the minimum down payment for FHA loans?

The minimum down payment for FHA loans is 3.5%. However, you will need a credit score of at least 580 to qualify for a 3.5% down payment.

If your credit score falls between 500 and 579, your minimum down payment will be 10%.

Not there yet? You can follow a few simple steps to build your credit to 580 and beyond.

What are the debt-to-income requirements for FHA loans?

When you apply for an FHA loan, you will be asked for a bunch of information about your debts, open lines of credit and sources of income.

Your lender will use this information to calculate your debt-to-income (DTI) ratio. Your DTI ratio is your monthly debts (including the proposed mortgage payment) divided by your gross monthly income.

To qualify for an FHA loan, your new DTI ratio should be less than 50%. This, however, is not a hard and fast rule.

You may be able to get away with a slightly higher DTI if you compensate with proof of residual income, cash reserves, steady employment or a high credit score.

FHA loan requirements by lenders

So far, we’ve only discussed the minimum requirements for an FHA loan.

The lender is the one taking on the immediate risk, so it will have the final say. Don’t be surprised if it asks you for a higher credit score or better DTI ratio.

If this happens, don’t panic. The country is full of lenders that offer FHA loans. If one seems too strict, you can shop around for another.

Checklist covering FHA loan requirements

Next steps

Don’t meet all the requirements? Make sure you’ve followed all the basic steps to improve your credit score, reduce your debt load and save up for a decent down payment.

Once you’ve done that, it’s time to track down a lender. The Department of Housing and Urban Development offers a searchable list online.

Whether you decide on an FHA or conventional loan, make sure you shop around. Some lenders have stricter guidelines, higher fees or worse interest rates.

Tip: Use an FHA loan calculator

Using an FHA loan calculator can help you determine the minimum allowable down payment and maximum FHA mortgage allowed on a home purchase. Enter in a few details and also get an estimate of closing costs and required upfront Mortgage Insurance Premium (MIP).

FHA Loan Calculator

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About the Author

Mitchell Glass

Mitchell Glass

Freelance Contributor

Mitchell is a freelance contributor to MoneyWise.com.

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