Cash News
Since its creation in 1934, the Federal Housing Administration (FHA) has insured home loans so lenders are financially protected should you default on your mortgage payments. This makes it more attractive for lenders to issue mortgages — especially to first-time home buyers and low-to-moderate-income households, making homeownership possible for borrowers who may not otherwise qualify for a loan.
FHA-approved lenders must follow the government-set loan requirements. Potential borrowers must understand these requirements to increase their chances of being approved for an FHA mortgage.
Learn more: How FHA-approved condos work
In this article:
What is an FHA mortgage loan?
Mortgages insured by the Federal Housing Administration are known as FHA loans. The FHA, which is part of the US Department of Housing and Urban Development (HUD), insures loans that meet specific requirements and are issued by participating FHA mortgage lenders. Since the FHA protects lenders from the possibility of losses, this extends the option of homeownership to borrowers with lower credit scores or higher levels of debt.
Read more: The best FHA loan lenders
FHA home loan requirements
FHA borrowers must meet certain eligibility requirements. Since private lenders offer FHA loans, the specific requirements may vary from one lender to the next. However, many mortgage lenders adhere to the following standards set by the FHA.
Minimum credit score and down payment
Borrowers with a credit score of 500 or above can qualify for an FHA loan. The lowest individual score is considered if two (or more) borrowers apply together.
Though you can qualify for an FHA loan with a 500 score, borrowers with a score of 500 to 579 must make a minimum down payment of 10% to receive the loan. If you have a score of 580 or higher, you can qualify for an FHA loan with a low down payment of 3.5%.
Maximum debt-to-income ratio
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes toward your debts, such as your mortgage, student loans, and credit cards. A higher DTI indicates that more of your monthly income is earmarked to pay your creditors.
FHA lenders typically want to see borrowers with a maximum DTI of 43%. You may still qualify for an FHA loan with a higher DTI if you have a strong credit score or other compensating factors. However, paying down your debts to lower your DTI will help you qualify for an FHA loan and potentially increase your credit score in the long run by lowering your credit utilization ratio.
Learn more: What percentage of your income should you spend on a mortgage?
FHA loan limits
The FHA limits how much you can borrow with an FHA loan. For 2024, the borrowing limit for a single-family home is $498,257 in most parts of the United States. In high-cost areas, the maximum is $1,149,825 for a single-family home. Alaska, Hawaii, Guam, and the Virgin Islands have an even higher loan ceiling of $1,724,737 for a single-family home.
You can check the FHA Mortgage Limits website to find your area’s maximum FHA home price.
Mortgage insurance requirements
Anyone getting an FHA loan must pay mortgage insurance premiums (MIPs). The borrower pays this kind of insurance to protect the lender financially in case you default on your loan. You’ll pay an up-front mortgage insurance premium (UFMIP) of 1.75%, then an annual premium as part of your monthly mortgage payments. The amount of your annual premium depends on several factors, including your loan amount, term length, and loan-to-value ratio.
You can choose to either pay your UFMIP as part of your FHA loan closing costs or roll it into your mortgage principal.
If your down payment is smaller than 10%, you will have to pay MIP for the life of the loan. But if you put down 10% or more, your lender will cancel the FHA mortgage insurance after 11 years.
FHA home appraisal
As with most types of mortgages, an FHA loan requires a home appraisal. You must have an FHA-approved appraiser come to the home to generate an estimate of the house’s market value and confirm that it meets the Department of Housing and Urban Development’s minimum property standards for a home.
Dig deeper: Pros and cons of FHA loans
FHA loan requirements: FAQs
Is there a minimum income requirement for an FHA loan?
No, the government does not set minimum or maximum income requirements for FHA loans. You won’t be disqualified by either earning too little or too much. However, the lender will check to ensure you can afford the mortgage loan by looking at factors like your debt-to-income ratio.
What would disqualify you for an FHA loan?
You may be disqualified for an FHA loan if your credit score is below 500, your debt-to-income ratio is greater than 43%, or you don’t have enough money for the down payment.
How hard is it to qualify for an FHA loan?
Most borrowers will find qualifying for an FHA loan easier than a conventional mortgage. That’s because FHA loans have lower credit score requirements and allow for higher debt-to-income ratios. However, FHA loans may cost more than conventional loans due to the ongoing cost of mortgage insurance premiums.
This article was edited by Laura Grace Tarpley.