Key takeaways
- FHA loans have their own specific set of requirements, including credit score and down payment, that may be lenient than other mortgages' criteria.
- All FHA loans require you to pay a mortgage insurance premium.
An FHA loan is a mortgage issued by a commercial lender but insured by the Federal Housing Administration (FHA). FHA loan requirements are generally more flexible than what you’ll find with other types of mortgages. They’re designed for low- to moderate-income borrowers with a lower minimum credit score requirement. Here are the specific FHA loan requirements you need to meet to qualify.
FHA loan requirements of 2024
What is required for FHA loan qualification? First, we’ll give you a quick overview, then we’ll drill down into each of these FHA loan requirements:
- Credit score: Minimum credit score of 580 (or 500 with a higher down payment)
- Down payment: 3.5 percent (or 10 percent with a credit score between 500 and 579)
- DTI ratio: Your monthly obligations should consume no more than 43 percent of your monthly income, although some lenders allow a higher limit if the borrower has compensating factors
- Loan limits: $498,257 or up to $1,149,825 in higher-cost areas
- Mortgage insurance premiums (MIP): MIP is paid in two forms: an upfront MIP paid at closing and an annual MIP that’s rolled into your monthly payment. If you make a down payment of less than 10 percent, you’ll pay annual MIP for the life of the loan
Minimum credit score: 500-580
If you want to put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you’ll need to make at least a 10 percent down payment. Just to put this in context, conventional loans — mortgages backed by private lenders — typically demand credit scores above 620 or higher. Keep in mind that this is the limit set by the FHA. Individual lenders have the flexibility to decide if they want to require a higher score.
If your score is below 600, be prepared to find an FHA-approved lender who can put your application through manual underwriting, since getting approved can get more challenging the lower your credit score, says Bob Tait of Motto Mortgage Elite Services in Bucks County, Penn. Tait also recommends taking steps to boost your score now if you’re planning to buy a home in the next year. “[Start by] getting your credit pulled, finding out what is on your credit report and aligning yourself with a lender who will help you improve your credit,” he advises.
Examine your credit report for errors as well as pay down your debts, especially if they’re past due. Other steps you can take include making on-time payments and refraining from taking out other loans or applying for new forms of credit as you’re shopping around.
Minimum down payment: 3.5-10 percent
Credit score requirements are not the only benchmark you need to meet. You’ll need to make a down payment of at least 3.5 percent. This minimum increases to 10 percent if your credit score is between 500 and 579. In comparison, conventional lenders routinely request 20 percent down payments.
Still, if even 3.5 or 10 percent seems like a stretch, you might not be completely out of luck. FHA loans allow borrowers to draw down payment funds from sources other than their own savings, such as a gift from a relative or close friend, says Tait. Borrowers may also be eligible for down payment assistance through a state agency to help cover the cost.
FHA loans are also appealing to cash-strapped buyers because of the FHA’s flexible standards on who pays for closing costs. You could be eligible for seller credits — meaning the current homeowner pays them, not you — which can possibly cover 100 percent of your closing costs, says Tait. This minimizes your out-of-pocket expenses.
Debt-to-income ratio: 43 percent
For FHA mortgage applicants, another significant factor is their DTI, or debt-to-income ratio. Generally, though, the DTI FHA loan requirements mean that on a monthly basis, your combined debt payments, including your mortgage, shouldn’t exceed 43 percent; no more than 31 percent of your income should go toward your mortgage payments.
That said, your lender could make exceptions for your overall DTI up to 45 percent, 50 percent or even 57 percent with an FHA loan, assuming you have mitigating factors like a lot of liquid assets or can make a sizable down payment.
Loan limits: $498,257 to $1,149,825
FHA loans have limits that dictate how much you can borrow depending on the type of property you’re financing and where you’re buying. In 2024, the FHA loan limit for a single-family home in most counties is $498,257, but can be as high as $1,149,825 in higher-cost areas. For Alaska, Hawaii, Guam and the U.S. Virgin Islands, this limit is even higher, at $1,724,725 due to elevated construction costs.
Mortgage insurance
All FHA loans require you to pay mortgage insurance premiums (MIP). This includes an upfront premium that’s 1.75 percent of the loan amount, which is paid either at closing, or incorporated into the final loan amount. There are also annual premiums that are paid as part of your monthly mortgage payments. The exact amount varies based on factors like the down payment, loan amount, loan term and loan-to-value (LTV) ratio.
For FHA borrowers who opt for a 30-year term and a 3.5 percent down payment, you’ll pay 0.55 percent of the loan amount, divided by 12 and added to your monthly payment. That means, if you borrow $300,000, you’ll pay $1,650 a year — or $137.50 monthly — for MIP.
Inspection and property requirements
FHA loans include a process in which a HUD-approved appraiser must assess the property to verify its market value and compliance with HUD’s basic property standards. These standards dictate that the property:
- Must be structurally sound with a solid foundation
- Must not have any significant defects or incomplete renovations
- Has adequate drainage and irrigation
- Provides a safe and livable environment with working heating, plumbing and electrical systems
- Has adequate lighting and ventilation in all rooms
- Is free of hazards inside and outside of the home
Next steps for getting an FHA loan
Once you’ve met the requirements above, it’s time to start shopping for an FHA loan. Here are some steps to follow:
- Prepare your paperwork: Start by preparing the necessary paperwork to prove your finances and creditworthiness. This includes information about your income, employment history, current debts, bank accounts and other financial assets.
- Get preapproved: Go through the preapproval process with multiple lenders who offer FHA loans and compare their rates, fees and loan APRs.
- Put in an offer: Find the home you want to buy and put in your offer, submitting the preapproval letter from the lender you want to work with.
- Apply for the mortgage: Once you have signed a purchase and sale agreement on a home, you can apply for the mortgage. Work with your lender to finalize the loan, setting the final loan terms and signing the mortgage documents.
Learn more: Compare current mortgage rates for today
Frequently asked questions about FHA loans
An FHA loan is a type of home loan insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. They’re particularly popular among first-time homebuyers and those with less-than-perfect credit scores because they allow lower down payments and credit scores. To get an FHA, you apply with a lender that offers them, just like you would with a conventional mortgage.
No, there are no set income limits for FHA loans. However, there are loan limits. In most areas, the most you can borrow with an FHA loan is $498,257. This goes up to $1,149,825 in high-cost areas.
Yes, it’s possible to apply for an FHA loan after you’ve experienced a foreclosure. Typically, you’ll need to wait three years after the foreclosure process has been finalized. However, you may be eligible for an exception to this waiting period if you can prove that the foreclosure was due to circ*mstances beyond your control, such as the loss of income due to a disability or the death of a spouse.
