FHA Loan Requirements

FHA loan requirements are generally more lenient than those of conventional lenders. The Federal Housing Administration is a government program administered by Housing and Urban Development (HUD)  to help Americans who can't qualify for a conventional mortgage loan become homeowners.

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FHA Loan Requirements: Income

There is no minimum income requirement to obtain an FHA mortgage loan, but you must demonstrate steady income for at least three years, and demonstrate that you've consistently paid your bills on time.  FHA loan requirements allow seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family to qualify as income sources. FHA loan requirements even recognise that part-time pay, overtime, and bonus pay also count as income as long as they are steady.

FHA Loan Requirements: Debt-to-Income Ratio

The FHA allows you to use 29% of your income towards housing costs and at total of 41% towards housing expenses plus other long-term debt. Compare this with a conventional loan, which generally allows only 28% toward housing and 36% towards housing expenses plus other debt.

FHA Loan Requirements: Down Payment

You must have a down payment of at least 3% of the purchase price of the home, and this cash may be a gift or grant. Most affordable loan programs offered by private lenders require between a 3% - 5% down payment, with a minimum of 3% coming directly from the borrower's own funds. 

FHA Loan Requirements: Credit Score

The FHA is generally more flexible than conventional lenders in its qualifying guidelines. You can qualify for an FHA loan without a credit history.  If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.

In the case of bad credit, the FHA allows you to re-establish credit if two years have passed since a bankruptcy has been discharged and all judgments and tax liens have been paid, or if arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue. The FHA may also allow you to borrow once three years have passed since a foreclosure or a deed-in-lieu has been resolved. 


FHA Loan Requirements: Closing Costs Required

Except for the addition of an FHA mortgage insurance premium, FHA
closing costs are similar to those of a conventional loan.

The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing. This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

More detail on FHA loan requirements.

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