FHA loan requirements: What you need to know before applying

In a nutshell

If you’re in the market for a mortgage, you might consider a loan backed by the Federal Housing Administration (FHA). FHA loans have looser requirements than conventional mortgages, making them easier to qualify for — even with a lower credit score and smaller down payment amount.

• Your down payment can be as low as 3.5% with a credit score of 580 or higher.
• The minimum down payment is 10% for credit scores between 500 and 579.
• FHA loans require upfront and annual mortgage insurance premiums for all borrowers, regardless of down payment.

Here’s an overview of the FHA’s minimum loan requirements for 2024.

What is an FHA loan?

An FHA loan is a government-insured mortgage that’s issued by an FHA-approved lender, such as a bank, online lender or credit union. Because the government insures FHA loans, lenders bear less risk if you fail to repay the loan and default. That means lenders can offer better deals to borrowers with lower credit scores and smaller down payments.

Learn more: What is an FHA loan?

FHA credit score minimum: 500

Your credit score helps lenders determine how likely you are to repay a loan. The higher your score, the lower your risk as a borrower, and the more likely creditors will lend to you. You can qualify for an FHA loan with a lower credit score than conventional loans generally allow. While individual lenders may require higher credit scores, the FHA minimum is 500 if you put 10% or more down of the loan amount.

FHA down payment minimum: 3.5%

The minimum down payment for an FHA loan is tied to your credit score:

• You’ll need a 10% down payment if your credit score is between 500 and 579.
• The minimum FHA down payment is 3.5% of the loan amount with a credit score of 580 or higher.

If you need help with the down payment, you can use a no-strings-attached gift from a friend, family member, employer, labor union or charitable organization. However, your lender will require a gift letter written, signed and dated by the donor explicitly stating that it’s not a loan you’ll need to repay.

FHA debt-to-income (DTI) ratio maximum: 50%

Your DTI shows how much debt you have relative to your monthly income. Lenders assess your ability to handle mortgage payments on top of your existing debt payments, with lower DTIs signaling your debt is more manageable. FHA borrowers can have a maximum DTI ratio (including all monthly debts and their new mortgage payment) of 50%.

FHA income requirements: None

FHA loans are generally intended for low- to moderate-income borrowers, but there are no specific income requirements — so you don’t need to worry about making too much or too little to qualify. Still, you’ll need to provide proof of a steady employment history. Your lender will ask for documents like paycheck stubs, W-2s, 1099s, tax returns and recent bank statements.

FHA loan limits: $498,257 to $1,149,825

The FHA insures mortgages only up to a certain amount, which limits how much house you can finance with an FHA loan. Each year, the FHA updates its loan limits to reflect changing living costs and home prices.

For 2024, the FHA loan limits for single-family homes range from $498,257 in low-cost areas up to $1,149,825 in high-cost areas. Mortgage limits in Alaska, Hawaii, Guam and the U.S. Virgin Islands are higher ($1,724,725) to account for higher building costs in those areas.

FHA documentation requirements

Your lender will ask for several documents to verify your employment, income, assets and debts. Plus, lenders pull your credit report to get a full picture of your outstanding debt balances.

Here are some of the most common items you’ll need to provide:

• Valid government-issued ID, such as a driver’s license or passport.
• Social Security card (or other proof of your number).
• Two years of W-2s, 1099s and tax returns.
• 30 days of pay stubs.
• Current income statement, business balance sheet and 1099s, if you’re self-employed.
• Checking and savings account statements.
• Brokerage and retirement account statements.
• Recent debt statements.
• Bankruptcy and discharge papers, if applicable.
• Divorce, alimony or child support papers, if applicable.
• Gift letters if someone helps you with the down payment.

FHA property requirements

The property you finance with an FHA loan must be your primary residence, not an investment property or a vacation home. You’ll need to move into the home within 60 days of closing and live in it for at least one year.

Various types of homes are eligible for FHA loans, including detached and semi-detached homes, townhouses, rowhouses and units in FHA-approved condominiums. You’ll also need an appraisal from an FHA-approved appraiser, and the home must meet minimum property standards regarding durability, safety and soundness.

FHA mortgage insurance requirements

All FHA loans require mortgage insurance, regardless of your down payment. The insurance protects your lender (not you), though you foot the bill. Your FHA mortgage insurance premium (MIP) involves two payments:

• Upfront FHA MIP (UFMIP): This one-time premium equals 1.75% of your base loan amount. You can pay the premium at closing or roll it into your loan and pay it over time.
• Annual MIP: This annual premium ranges from 0.45% to 1.05% of your loan amount. The premium is divided into 12 monthly payments and added to your mortgage payment. The cost is based on your loan amount, loan term and loan-to-value (LTV) ratio. If your down payment is less than 10%, you’ll pay MIP for the life of the loan. You’ll pay MIP for 11 years if your down payment is 10% or more.

Notably, a 35% cut in the price of the annual MIP went into effect on March 20, 2023, helping more than 682,000 borrowers save an average of $876 each year, according to the U.S. Department of Housing and Urban Development.

FHA foreclosure waiting period: 3 years

If you have a previous foreclosure, you must wait at least three years before applying for an FHA loan. However, a lender might grant an exception if extenuating circumstances beyond your control led to the foreclosure, such as a serious illness or the death of a wage earner, and you’ve reestablished good credit since.

How to apply for an FHA loan

You’ll need to go through an FHA-approved lender to apply for an FHA loan. The process is much like applying for any other mortgage. It’s always a good idea to compare offers from at least three lenders to get the best mortgage rate and terms.

The AP Buyline roundup

FHA loans expand homeownership opportunities to borrowers who may otherwise have trouble qualifying for a mortgage. An FHA loan might be a good fit if you have a lower credit score, higher debt-to-income ratio, smaller down payment or you expect to use gift funds from friends, family members or other eligible donors. As with any mortgage, comparing loan offers from at least three lenders can help you find the best rate and terms.

Frequently asked questions (FAQs)

What will disqualify you from an FHA loan?

FHA loans have more lenient borrowing standards than conventional loans, but that doesn’t mean everyone will qualify. Here are a few reasons your application could be denied:

• Your credit score is too low: Although FHA loan rules allow a credit score as low as 500 (with 10% down), individual lenders may have higher minimum requirements.
• You have too much debt: If your DTI ratio exceeds 50%, you may have trouble getting approved for an FHA loan.
• You can’t afford the down payment: Your lender will confirm that you have enough cash on hand to pay the down payment and closing costs. If you come up short, you won’t qualify for the loan.
• You already have an FHA loan: While you can have multiple FHA loans throughout the years, you can only have one at a time.

Is it harder to qualify for an FHA loan?

Mortgages backed by the FHA are often easier to qualify for than conventional loans due to their lower credit score and down payment requirements.

What would cause a house to fail an FHA inspection?

Borrowers must meet specific requirements to get FHA loans, but so do homes. The property must be safe, sound and secure to qualify for an FHA loan. Here are some common issues that would disqualify a home from an FHA loan:

• Exposed or damaged wiring or electrical systems that aren’t up to code.
• Heating systems that don’t provide comfortable temperatures and water heaters that don’t adhere to local building codes.
• Signs of water damage (e.g., rotting floors and moldy walls) or standing water around the home.
• Roofs that leak or need to be replaced within a few years.
• Attics that aren’t adequately ventilated to allow heat to escape.
• Safety hazards like asbestos and contaminated soil.
• Safety issues like structural damage, leaking, missing electrical fixtures and decay.
• Septic or sewer issues.
• Pest infestations in the foundation, basement, crawl space or attic.
• Lack of pedestrian and vehicle access in all weather conditions (especially for emergency vehicles).
• Too close to high-voltage power lines, high-pressure petroleum lines, radio or TV transmission towers, airports, hazardous waste sites or sources of excessive noise.