FHA loans are mortgage loans insured by the Federal Housing Administration, to make homeownership more accessible to a broader range of borrowers. Unlike conventional loans, FHA loans typically offer more lenient credit requirements and lower down payment options.
This short guide provides an overview of the current FHA loan eligibility criteria, providing valuable information for first-time home buyers, individuals with low-to-moderate income, and others who may benefit from this government-backed mortgage program.
These loans come in several varieties, including standard purchase loans, 203(k) renovation loans for fixer-uppers, and various refinance options.
> Minimum credit score for 3.5% down payment: 580 or higher
> Credit scores between 500-579: eligible with 10% down payment
> Note: Individual lenders may have stricter criteria
> Maximum allowable DTI: Generally between 43% and 50%
> Calculation: Monthly debt payments compared to gross monthly income
> Flexibility: Higher DTIs may be allowed with compensating factors (e.g., higher credit score, cash reserves)
> Requirement: FHA-approved appraiser evaluation
> Focus: Ensuring the home is “safe, secure, and sound”
> Common issues flagged: Structural problems, safety hazards, major deferred maintenance
> Standard areas: $472,030 for single-family homes
> High-cost areas: Ceiling of $1,089,300
> Note: Limits vary by county and are subject to annual adjustments
> Upfront premium: Typically 1.75% of the loan amount
> Annual premium: Varies based on loan term, amount, and loan-to-value ratio
> Impact: Crucial for estimating long-term loan affordability
> General requirement: Minimum of two years steady employment history
> Exceptions: Possible for employment gaps or recent career changes
> Verification: Thorough review of employment records and income documentation
> Minimum down payment: Tied directly to borrower’s credit score
> 3.5% down: For credit scores of 580 or higher
> 10% down: For credit scores between 500 and 579
> Allowed sources: Various, including gifts from family members and approved assistance programs
> Typical range: 2% to 6% of the loan amount
> Seller contributions: Up to 6% of sales price allowed towards buyer’s closing costs
> Cost reduction: Potential use of FHA-approved housing counseling services
> Allowed by FHA loans
> Benefits: Can help borrowers qualify with additional income
> Considerations: Specific rules for debt-to-income calculations and property occupancy
> Eligibility: Existing FHA loan holders
> Benefits: Simplified process, potentially lower rate or more favorable terms
> Requirements: Often less documentation, may not require new appraisal
> Purpose: Finance both purchase price and renovation costs in a single loan
> Ideal for: Buyers looking to customize a home or invest in properties needing significant repairs
> Advantage: Allows for improvements to be made immediately after purchase