FHA Loan Requirements

FHA Loan Requirements Overview

Federal Housing Administration (FHA) loans are designed to make homeownership more accessible, particularly for first-time homebuyers and those with less-than-perfect credit. While FHA loans offer more flexible qualification standards than conventional mortgages, there are still specific requirements that borrowers and properties must meet to qualify.

This guide covers all the key FHA loan requirements, from borrower qualifications to property standards, helping you determine if an FHA loan is the right option for your homebuying journey.

Borrower Requirements

Credit Score Requirements

Your credit score is a key factor in determining your eligibility for an FHA loan and the down payment you'll need:

While the FHA sets these minimum standards, many FHA-approved lenders require higher credit scores (typically 620 or above). If your score is between 500-579, you may need to shop around to find a lender willing to work with you.

Credit History Considerations

Beyond your credit score, lenders will evaluate your overall credit history, including:

• Payment history on existing debts
• Collections, charge-offs, or judgments
• Bankruptcies or foreclosures
• Frequency of credit applications

Waiting Periods After Credit Events

If you've experienced a major credit event, you'll need to wait a certain period before qualifying for an FHA loan:

In some cases, borrowers with "extenuating circumstances" (serious events beyond their control, like medical emergencies or natural disasters) may qualify for shorter waiting periods.

Down Payment Requirements

As shown in the credit score table, FHA loans require a minimum down payment of:

• 3.5% of the purchase price with a credit score of 580 or higher
• 10% of the purchase price with a credit score between 500-579

Down Payment Sources

Unlike conventional loans, FHA loans allow the entire down payment to come from:

• Gift funds from family members, employers, close friends, or charitable organizations
• Down payment assistance programs offered by state and local governments
• Employer assistance programs

If using gift funds, you'll need a gift letter documenting that the money is a gift and not a loan requiring repayment.

Cash Reserves

While FHA loans don't always require cash reserves, having at least one month of mortgage payments (including principal, interest, taxes, and insurance) in savings after closing can strengthen your application, especially if you have other qualifying concerns.

Debt-to-Income (DTI) Ratio Requirements

Your debt-to-income ratio measures your monthly debt payments relative to your gross monthly income. FHA loans evaluate two types of DTI ratios:

Front-End DTI Ratio

This ratio only considers housing-related expenses:

Housing costs include principal, interest, property taxes, homeowners insurance, mortgage insurance, and HOA fees (if applicable).

The FHA typically requires a front-end ratio of 31% or less, though exceptions can be made with compensating factors.

Back-End DTI Ratio

This ratio considers all monthly debt obligations:

Total debt includes housing costs plus car loans, student loans, credit cards, personal loans, child support, and other recurring debt obligations.

The FHA typically requires a back-end ratio of 43% or less, though exceptions can be made with compensating factors.

Compensating Factors for Higher DTI Ratios

With strong compensating factors, borrowers may qualify with DTI ratios exceeding the standard limits. These factors include:

• Significant cash reserves (3+ months of mortgage payments)
• Minimal increase in housing payment from previous rent/mortgage
• Excellent credit history with no late payments
• Residual income exceeding VA requirements
• Documented history of paying similar housing costs
• Potential for increased earnings due to education or training

Income and Employment Requirements

FHA loans require borrowers to demonstrate stable, reliable income sufficient to make mortgage payments.

Employment History

Typically, you'll need:

• 2+ years of continuous employment
• No employment gaps longer than 30 days in the past 2 years
• If you've changed jobs, they should be in the same field or represent career advancement

Self-Employment

Self-employed borrowers typically need:

• 2+ years of self-employment in the same business
• Business and personal tax returns for the past 2 years
• Year-to-date profit and loss statement
• Business bank statements

Income Documentation

You'll need to provide documentation for all income sources, which may include:

• W-2 forms for the past 2 years
• Pay stubs covering the most recent 30 days
• Federal tax returns for the past 2 years
• Documentation of other income sources (alimony, child support, retirement, etc.)

Other Borrower Requirements

Legal Residency

To qualify for an FHA loan, you must be:

• A U.S. citizen, or
• A lawful permanent resident (green card holder), or
• A non-permanent resident with a valid visa and legal right to work in the U.S.

You must also have a valid Social Security Number.

Primary Residence Requirement

FHA loans are only available for primary residences—properties where you intend to live most of the year. You cannot use FHA loans for:

• Investment properties
• Vacation homes
• Second homes (with rare exceptions)

You must occupy the property within 60 days of closing and continue to use it as your primary residence for at least one year.

FHA Loan Limits

FHA loan amounts are subject to limits that vary by county and property type. These limits are adjusted annually based on housing costs in each area.

For 2023, the FHA loan limits range from:

• Low-cost areas: $472,030 for a single-family home
• High-cost areas: $1,089,300 for a single-family home

Higher limits apply for 2-4 unit properties. Check our FHA Loan Limits page for current limits in your area.

Property Requirements

In addition to borrower qualifications, the property being purchased must meet FHA standards.

Eligible Property Types

FHA loans can be used to purchase:

• Single-family homes
• 2-4 unit properties (as long as the borrower lives in one unit)
• Condominiums in FHA-approved projects
• Manufactured homes on permanent foundations
• Townhouses

Minimum Property Standards

All properties must meet FHA's Minimum Property Standards (MPS), which focus on the health and safety of occupants, the security of the property, and the structural soundness of the home.

Safety and Health

• Safe, potable water supply
• Adequate heating system
• No lead-based paint hazards (for homes built before 1978)
• No health or safety hazards
• Proper ventilation in attics and crawl spaces

Security

• Secure, lockable doors and windows
• Proper drainage away from the foundation
• No active termite infestation

Structural Soundness

• Sound foundation
• Roof with reasonable remaining life
• Functional electrical, plumbing, and HVAC systems
• No significant structural damage

FHA Appraisal Requirements

All properties must undergo an appraisal by an FHA-approved appraiser who evaluates:

• Property value (must be at least equal to the purchase price)
• Compliance with FHA's Minimum Property Standards
• Potential health, safety, or structural issues

If the appraisal identifies issues, they must be repaired before the loan can close. In some cases, repairs can be included in the loan through the FHA 203(k) rehabilitation loan program.

Condominium Requirements

For condominiums, the entire project must be FHA-approved or eligible for single-unit approval. Requirements include:

• At least 50% of units must be owner-occupied
• No more than 10% of units owned by a single investor
• No more than 15% of units can be 60+ days delinquent on HOA fees
• At least 10% of the budget allocated to reserves
• Adequate hazard, liability, and flood insurance
• No pending litigation that could impact the project's financial stability

You can check if a condo project is FHA-approved using HUD's Condominium Approval Search.

FHA Mortgage Insurance Requirements

All FHA loans require mortgage insurance, which protects lenders if borrowers default. FHA mortgage insurance has two components:

Upfront Mortgage Insurance Premium (UFMIP)

• 1.75% of the base loan amount
• Paid at closing or financed into the loan
• Required for all FHA loans regardless of down payment or loan term

Annual Mortgage Insurance Premium (Annual MIP)

Paid monthly as part of your mortgage payment. The rate and duration depend on your loan term, loan amount, and down payment:

Note: For loans with less than 10% down payment and terms longer than 15 years (the most common FHA loan scenario), mortgage insurance is required for the life of the loan. The only way to remove it is to refinance to a conventional loan once you have sufficient equity.

Closing Costs and Fees

In addition to the down payment, you'll need funds for closing costs, which typically range from 2-5% of the loan amount. FHA-specific costs include:

FHA-Specific Fees

• Upfront Mortgage Insurance Premium (UFMIP): 1.75% of the loan amount
• FHA Appraisal Fee: $300-$500 (varies by location and property size)

Standard Closing Costs

• Lender Fees: Application fee, origination fee, credit report fee
• Third-Party Fees: Title search, title insurance, escrow fees
• Prepaid Items: Property taxes, homeowners insurance, interest
• Discount Points: Optional fees paid to lower the interest rate

Seller Contributions

Sellers can contribute up to 6% of the purchase price toward the buyer's closing costs and prepaid items. This is higher than the 3% limit for conventional loans with less than 10% down.

Compensating Factors for Borderline Applications

If you don't meet all the standard FHA requirements, compensating factors may help you qualify. These are strengths in your application that can offset weaknesses in other areas:

Conclusion

FHA loans offer more accessible qualification standards than conventional mortgages, making homeownership possible for many who might otherwise struggle to qualify. While the requirements outlined in this guide represent the official FHA standards, remember that individual lenders may impose stricter criteria.

If you're considering an FHA loan, it's wise to check your eligibility with multiple FHA-approved lenders to find the best terms for your situation. You can also use our FHA Loan Calculators to estimate your potential monthly payments and determine how much house you can afford.