FHA Loan Requirements: How to Get Help Buying Your First Home

Key Points:

• FHA loans offer low down payment requirements that start at 3.5%.
• You can get an FHA loan from banks or other approved private mortgage lenders.
• The minimum credit score is 500 to qualify.
• You can get an FHA loan up to $726,525 if you live in a high cost of living area, or $314,827 if you live in standard regions.

An FHA loan is a mortgage insured by the U.S. Federal Housing Administration that is often easier to qualify for than other home loan types because of low down payment and credit score requirements. 

Approved FHA lenders offer FHA mortgages alongside conventional loans, but FHA loans may have lower interest rates. These loans can make homeownership more affordable, especially for first-time home buyers who may struggle with the down payment expected for conventional loans.

This guide will tell you everything you need to know about how to qualify for an FHA loan to purchase or refinance a home.

In this guide:

• FHA loan requirements
• FHA home loan costs
• How to get an FHA loan: application process
• How to find an FHA lender

FHA loan requirements

Here’s what you need to know about taking out an FHA loan:

• FHA loan income requirements: There are no minimum or maximum income limits, but you need a debt-to-income ratio of 50% or less, and your mortgage payment should be no more than 31% of your monthly income. 
• FHA loan credit score requirements: You need a minimum 500 FICO score with a 10% down payment or 580 with 3.5% down payment. Individual lenders may choose to increase these credit requirements.
• FHA home requirements: You must be purchasing the home to be your primary residence.
• First-time home buyer qualifications: FHA borrowers are not required to be first-time home buyers.
• Minimum down payment: You’ll pay 3.5% or 10% down depending on your FICO score.
• FHA loan mortgage insurance premiums: You’ll pay 1.75% upfront for mortgage insurance plus an annual mortgage insurance premium (usually folded into your monthly mortgage payment) that varies depending on your loan-to-value ratio (LTV).

FHA loan income requirements

FHA loans do not have any minimum or maximum income requirements for home buyers. However, mortgage lenders are interested in whether or not you can afford your home.

FHA loans require a maximum 50% debt-to-income ratio, though many lenders prefer 43% or less. That means your monthly debt payments, including your mortgage, should equal no more than 43% of your gross monthly income. 

The FHA also requires that your mortgage payment equal no more than 31% of your monthly income. If you’re not sure how much you would qualify for, our mortgage calculator could help you figure that out. 

Lenders are also required to verify your income. You’ll likely need to provide:

• Written verification of employment for the last two years or an electronic verification that fulfills the requirements. 
• Two years of W-2s.
• Your most recent pay stub.

FHA loan credit score requirements

To qualify for an FHA mortgage, you’ll need to have a FICO score of at least 500. That will require you to put 10% down. If you have a credit score of at least 580, you’ll only be required to put 3.5% down. This may vary by lender.

Regardless of these minimums, the higher your credit score is, the lower your FHA loan interest rate will be. 

FHA home requirements

To qualify for an FHA loan, the house you’re buying has to be planned to become your primary residence. You cannot use an FHA home loan to buy a rental home or a vacation home. 

Mortgage loan amounts are also limited. In most areas, the FHA loan limit for 2019 is $314,827 for a single-family home. If you live in an area with a higher cost of living, like New York City or San Francisco, you can borrow up to $726,525. That limit is updated every year.   

First-time home buyer qualifications

You’re not required to be a first-time home buyer to qualify for an FHA loan. But if you are, you could qualify for additional national or state-based first-time home buyer programs, such as down payment assistance.

FHA home loan costs

There are a couple of closing costs you’ll have to consider when taking out an FHA loan, including your down payment and mortgage insurance.

Down payment

If you’re taking out an FHA loan, you’ll have to put down at least 3.5% of the home’s value upfront, or as much as 10% with a lower credit score. That means if you buy a $200,000 home, you’ll need a $6,000 down payment at 3.5% or a $20,000 down payment at 10%. 

Need help with your down payment? You may be able to get someone to give you the money; however, there are rules that restrict who can gift you cash for a down payment. A gift of 3.5% of the down payment can come from:

• A family member.
• Your employer or labor union.
• A close friend.
• A charitable organization.
• A government agency through a program for low- to moderate-income families or first-time home buyers. 

If you get a gift to help you with your down payment, you must provide the lender documentation of the transfer of funds as well as a gift letter that documents the gift and states that there is no expectation of repayment. 

FHA mortgage insurance premium (MIP)

FHA loans come with an upfront mortgage insurance premium cost of 1.75%. Some lenders will let you finance that into your mortgage.

You’ll also pay an ongoing monthly premium, which varies depending on the amount, term, and down payment on your mortgage loan.

It ranges from 0.45% to 1.05% of the loan amount annually. On a $200,000 mortgage that would be between $900 to $2,010 per year, split among monthly payments. 

This is in place of the private mortgage insurance (PMI) you’d pay with a conventional mortgage.

>> Read More: Are you considering refinancing your FHA loan? If so, additional requirements will apply. Learn about FHA streamline refinance loans here.

How to get an FHA loan: application process

Ready to apply for an FHA loan? Here are the steps you’ll need to take:

1. Get pre-approved

This step isn’t required, but it’s valuable. Apply for pre-approval so you know how large a mortgage you’ll be able to get. Mortgage pre-approval lets you know your price range, and can be helpful when you make an offer. 

To get pre-approved, give the lender some personal and income information to pull your credit report for an initial credit check.

2. Complete the Uniform Residential Loan Application

This application (also called a Fannie Mae Form 1003) is something you have to complete after you’ve made an offer on a house. 

You’ll include information about the mortgage loan you’re looking for and information on the property you want to buy. This will confirm things like your income, employment history, debts, and personal information. 

3. Get a property appraisal

The next step is to have the property professionally appraised so you know its market value. If the mortgage you’re asking for is higher than the home’s market value, then your lender might not approve the full loan amount. 

4. Complete underwriting and other documentation

The lender will look at your application and process it with the help of an underwriter, which will determine your eligibility and finalize the amount and interest rate of the loan. 

You might need to provide additional documentation or write a letter of explanation if there is an issue or if the lender needs more information during the underwriting process. 

5. Loan approval

If you’ve met all the lender’s and FHA’s loan requirements, you’ll be approved for your loan and can close on your new property. 

How to find an FHA lender

Finding the right FHA lender is critical. While FHA loans are regulated, each lender may have slightly different requirements and loan offers. Some might also offer perks, such as flexible customer service and quicker loan processing.

Our guide to the best FHA lenders can help you choose which lender is right for you.