Basic FHA mortgage requirements include a credit score of 580 or higher, a minimum down payment of 3.5%, and a maximum debt-to-income (DTI) ratio of 43%.
If you want to buy a house but have a lower credit score, you might be concerned about your options. Fortunately, the Federal Housing Administration (FHA) offers government-insured mortgage home loans for credit-challenged and low-savings borrowers.
However, FHA loans have different property and mortgage insurance requirements than those for conventional loans. This article will cover the basic requirements for FHA mortgage loans and the pros and cons of using FHA loans.
Understanding these rules now helps you shop confidently and prepare for preapproval. You can also use Clever to find agents experienced with your area and price range.
What is an FHA mortgage and how does it work?
The FHA insures mortgages to help borrowers with lower-than-average credit get into the housing market. Because the federal government insures these loans, lenders that issue them have more risk tolerance for borrowers.
The way FHA mortgages work is that the FHA sets minimum standards that lenders can add stricter rules to (called overlays). The primary benefit of FHA loans is that they have lower credit and down payment requirements than conventional loans.
Who FHA loans are a good fit for
Because they have lower financial requirements, FHA loans are a good fit for:
- First-time home buyers with limited savings
- Borrowers with low credit (<600) who cannot qualify for traditional loans
- Borrowers with higher debt (DTI<43%) but with otherwise decent finances
- Buyers with gift funds or down payment assistance
FHA mortgage requirements at a glance
Here’s an overview of the FHA requirements to qualify for a mortgage loan.
| Requirements | FHA baseline | What it means for you |
|---|---|---|
| Credit score |
| Credit score requirements vary. Borrowers with credit scores below 500 generally cannot qualify. |
| Down payment |
| The lower your credit score, the higher your required down payment will be. |
| DTI ratio |
| 43% DTI threshold can be raised to more than 50% with certain compensating factors |
| Property use | Primary residence only | No second homes or investment property |
| Appraisal standards | FHA approval, safe, sound, secure condition | Professional appraisal with verification of structural integrity |
| Mortgage insurance | Upfront premium and annual premium (non-cancelable) | Mortgage insurance on FHA loans is mandatory and cannot be canceled at a 20% equity threshold. With a large enough down payment, the annual premium can be dropped after 11 years. |
| Loan limits | Vary by county | Loan limits set by county based on average cost of living |
| Income Documentation | Two years | Must prove at least two years of steady income/employment with no serious delinquencies |
FHA credit score and down payment requirements
The FHA adjusts down payment requirements according to the borrower’s credit score. A higher credit score means a lower required down payment.
- A 580+ score qualifies you for a minimum of 3.5% down.
- A 500–579 score requires a 10% down payment.
- Borrowers with a score below 500 generally cannot qualify for FHA loans.
Note that even though the FHA’s floor is technically 500, lender overlays usually effectively require a credit score of 580–620+.
Lenders allow down payment funds from a variety of sources, including gift funds and down payment assistance programs.
FHA income and debt-to-income (DTI) requirements
The FHA debt-to-income maximum is 43% Your debt-to-income ratio is the ratio of your total monthly debt to your gross (pre-tax) monthly income.
Your debt includes all recurring obligations, such as taxes, housing payments, insurance, credit cards, child support/alimony, and other deductions.
For instance, if your monthly income is $5,500 and your total debts are $2,300, your DTI ratio is ($5,500 ÷ $2,300) ≈ 42%, which is right under the limit for FHA eligibility.
A note for student borrowers: DTI includes student loan payments, but you can count either the actual payment or a percentage of the loan balance, per HUD lending guidelines.
FHA employment and income documentation requirements
Lenders want to ensure you are financially stable enough to maintain payments, so they usually require you to prove at least two consecutive years of employment and income history. Acceptable sources of income include salary/hourly pay, self-employment income, commissions, and more.
You can prove your income with documents like:
- W2s
- Pay stubs
- Tax returns
- 1099s (for self-employment income)
The two years don’t necessarily have to be at the same job, but must be in the same field. Employment gaps longer than six months will typically count against you.
The FHA may also allow exceptions to the two-year rule for new graduates who have just transitioned to work.
FHA minimum property standards
FHA’s property appraisal requirements serve two purposes:
- Verify the home’s value
- Ensure the property meets FHA minimum standards[1] for soundness and safety
Issues such as flaws in the roof, foundation, wiring, plumbing, or structural problems can render a house ineligible for an FHA loan.
A property purchased with an FHA loan must be the borrower's primary residence, and the borrower must move in within 60 days. This rule is to prevent borrowers from using FHA loans to buy second homes or investment properties.
Note: FHA loans are intended for single-unit properties, but they permit two- to four-unit properties if the borrower resides in one of the units.
FHA mortgage insurance (MIP) requirements
FHA also requires all borrowers to pay a mortgage insurance premium (MIP) to protect against loan defaults. There are two ways to pay the FHA MIP:
- Upfront MIP: Usually 1.75% of the base loan amount
- Annual MIP: Paid monthly
Conventional loans let you cancel mortgage insurance when you hit 20% equity. However, FHA generally requires you to pay for mortgage insurance throughout the entire loan term.
One option to remove FHA mortgage insurance is to refinance to a conventional loan when you hit sufficient equity to avoid private mortgage insurance requirements.
Other FHA rules buyers should know
Below are some additional requirements for FHA mortgage loans[2] you should be aware of.
- Age/legal capacity. You must be at least 18 years old and of legal capacity to take out a mortgage.
- Loan limits. FHA maximum loan limits cap how much you can borrow and are based on average income in the county where you’re buying.
- Federal debt and CAIVRS. Borrowers cannot have any delinquent federal debt or else it will show up on the federal Credit Alert Verification Reporting System (CAIVRS).
- Non-occupant co-borrowers. The FHA allows non-occupant co-borrowers, such as parents, in some situations.
FHA mortgage requirements vs. conventional mortgage requirements
FHA loans are primarily distinguished from conventional loans. This table highlights the most significant differences.
| FHA Mortgage | Conventional Loan | |
|---|---|---|
| Minimum credit score | 580+500–579 | 620+ |
| Required down payment | 3.5%–10% | Up to 20% |
| Max DTI | <43%<50% with compensating financials | <43% |
| Mortgage insurance | Upfront or annual premium (non-cancelable) | Required with a <20% down payment |
| Property standards | FHA minimum standards | More lenient requirements than FHA |
| Loan limits | Vary based on the county | Based on FHFA conforming loan limits |
How to qualify for an FHA mortgage: Step-by-step
This step-by-step guide outlines the basic process of getting approved for an FHA mortgage.
1. Check your credit report for errors
Perform a credit pull and check for reporting errors. Resolving outstanding errors can boost your credit score by an appreciable amount.
2. Estimate your budget and DTI
Take all your monthly debts and divide by your total income to estimate your DTI ratio.
Remember to include all regular debt payments, like housing costs, car loans, credit cards, personal loans, and child support/alimony.
3. Save for down payment and closing costs
You’ll need enough cash to cover the down payment, ranging from 3% to 10%, depending on your credit, and closing costs, which are typically 2% to 6% of the purchase price.
You can use personal or gift funds to cover payments.
4. Gather employment documents
Get proof of work documents from your current employer and past employers from the previous two years. Gather W2s, pay stubs, bank statements, and other documents that verify your income.
5. Get quotes from different lenders
Lender overlays can significantly alter requirements for FHA mortgage loans, so consider obtaining quotes from at least three providers to compare rates.
6. Connect with a local agent
Consider working with a local agent who can provide guidance on navigating FHA requirements, property standards, and FHA appeals.
How FHA mortgage requirements vary by lender
It’s important to remember that FHA mortgage requirements are a minimum guideline for issuing loans. Individual lenders may add overlays and have stricter requirements.
For instance, even though the FHA has a credit floor of 500, most lenders won’t issue a loan to borrowers with a credit score that low. The practical limit is usually 580–620. Similarly, some lenders might cap DTI at 45% instead of 50%.
Overlays matter because they affect how you shop for loans. Two lenders might offer FHA-approved loans but have different credit score requirements and DTI thresholds. Shopping around to compare rates from multiple providers can help you get the best deal.
The bottom line
FHA loans may have more stringent property requirements than conventional loans, but they can be the best choice for borrowers with below-average credit and limited savings.
With Clever’s free agent-matching services, you can find top local agents who can help you:
- Target homes that will pass FHA appraisals
- Negotiate repairs and seller concessions
- Coordinate with lenders who issue FHA loans
Give Clever a try today to see what works for you. You may also qualify for cash back on closing!
FAQ
What are basic FHA mortgage requirements?
Basic FHA mortgage requirements are a credit score of 580, a minimum 3.5% down payment, and a DTI ratio less than 43%.
What is the minimum credit score for an FHA mortgage?
The minimum credit score is typically 580, but the FHA may accept lenders with lower credit if they have compensating financials, like a high income or substantial cash reserves.
How much do you need for a down payment on an FHA loan?
The minimum down payment is 3.5%, but the FHA can require up to 10% depending on your credit score and DTI.
What is the maximum DTI for FHA loans?
The standard maximum DTI for an FHA loan is 43%, though the FHA can allow DTI ratios as high as 50% with compensating financial factors.
What are the FHA property requirements?
The FHA requires the property to be your primary residence and requires an appraisal to verify structural soundness and safety.
Can I get an FHA loan if I have student loans or other debts?
You can still get an FHA loan if you have student loans or other debt, but that debt will factor into your DTI ratio.
Can I use an FHA loan for a second home or investment property?
You cannot use an FHA loan for a second home or investment property. You can get a second FHA loan if the new home becomes your primary residence.
Do FHA mortgage requirements change for first-time home buyers?
No, FHA mortgage requirements are the same for first-time and repeat buyers. However, first-time buyers may qualify for specific assistance programs.