Understanding FHA Home Loan Eligibility Criteria

Learn how to buy a house with only 3.5%!

Happy homeownersFederal Housing Administration (FHA) loans are mortgages guaranteed by the U.S. Department of Housing and Urban Development (HUD). In contrast to conventional mortgages, they do not require a high credit score or a substantial down payment. These 15- and 30-year loans are available for the purchase of single-family houses, two- to four-unit multiplexes, and individual condominium units.

The FHA does not give loans directly; you must work with an approved lender. The FHA provides lenders with a default guarantee. This permits FHA-approved lenders to loosen their lending rules and provides the possibility for homeownership to individuals that may not otherwise qualify for a mortgage.

FHA loans are popular among those who are new to the home-buying process.

To qualify for an FHA loan, you must fulfill certain borrower and property standards. In 2022, the Federal Housing Administration (FHA) raised the maximum loan limits for both low- and high-cost districts.

Below is a summary of the requirements you must meet. Keep in mind that although the FHA specifies these baseline guidelines, the lender has the discretion to increase them and make them more stringent.

FHA Loan Down Payment Requirement

An FHA loan is a mortgage that is insured by the Federal Housing Administration. When you obtain an FHA loan, you are required to make a down payment of 3.5 percent of the home’s purchase price.

However, you may borrow up to 96.5 percent of the home’s value, which may help you avoid having to come up with a large down payment. Additionally, FHA loans have less stringent credit requirements than other types of mortgages, which may make them a good option for borrowers who have struggled to get approved for a loan in the past.

FHA Employment Requirements

The FHA does not specify a minimum amount of time that a borrower must have held a job in order to be qualified for an FHA mortgage. The lender, however, is required to confirm the borrower's employment for the two most recent full years.

And the borrower is required to explain any breaks in work of more than one month, and state if the applicant was enrolled in school or in the military for the most recent two full years.

The applicant must provide supporting documentation for any employment gaps. College transcripts or discharge papers are acceptable.

FHA Loan Income Requirements

Young familyThe USDA loans have a maximum allowable income requirement, however FHA loans do not have this restriction. To put it another way, you can never have too much money or an income that is too large. It goes without saying that you need to earn enough money to qualify, but there is no such thing as making too much money for an FHA loan.

Having said that, in order to qualify for an FHA loan, you need to demonstrate that you have a stable income that will allow you to comfortably repay the loan. You will need to provide evidence that you have adequate credit and income to pay off your existing obligations, in addition to the payments that are required for the FHA loan going ahead.
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What is the credit score requirement for an FHA loan?

In order to qualify for the low down payment benefit offered by the FHA Loan program, applicants must have a minimum credit score of 580. If your credit score is less than 580, the minimum required down payment is 10% of the loan amount.

Bear in mind that the qualifications for FHA credit go beyond merely your credit score; lenders also decide eligibility based on a borrower's payment history, as well as any bankruptcies, foreclosures, or other mitigating circumstances that prevent applicants from making payments on time.

FHA Loan Credit Issues

During the underwriting process for your FHA loan, your FHA lender will evaluate the history of your credit performance. If you have a history of making payments on time, the Federal Housing Administration (FHA) may consider you suitable for a loan. The following is a list of factors that might have a negative impact on your eligibility for a loan:

  • No Previous Record of Credit If you do not have a credit history or if you do not utilize conventional credit, your lender will need to get a non-traditional consolidated credit report or you will need to construct a credit history via other ways.
  • Bankruptcy A borrower's previous bankruptcy does not prevent them from qualifying for an FHA-insured home loan. At least two years must have passed since the borrower's last bankruptcy filing for them to be eligible for Chapter 7 bankruptcy. Additionally, the borrower must have either re-established solid credit or opted to refrain from incurring any new credit commitments during this time.
  • Late Payments It is in your best interest to apply for an FHA loan after you have a solid twelve months' worth of on-time payments for all financial commitments under your belt.
  • Foreclosure However, depending on the specifics of the situation, a foreclosure in the past may or may not prevent you from getting a new FHA home loan.
  • Debt Collections, Court Orders, and the Federal Budget In most cases, the laws governing FHA loans require the lender to verify that any outstanding judgments have been satisfied either prior to or at the time of closing.

FHA Debt-to-Income ratio

Your monthly debt payments (which may include student loans, credit cards, mortgages, and other forms of credit) are divided by your monthly income before taxes to calculate your debt-to-income ratio (also known as DTI). For instance, if you have a monthly income of $2,000 and spend $450 on your different debt commitments, your debt-to-income ratio (DTI) is 22.5 percent.

Lenders will use this metric to determine whether or not it is probable that you will be able to repay the loan for which you have applied.

In order to qualify for a loan insured by the Federal Housing Administration (FHA), your debt-to-income ratio (DTI) must be lower than or equal to 43 percent.

However, this requirement might change depending on your credit score. To provide further clarity, your front-end debt-to-income ratio (which includes just your monthly mortgage payment) should be no higher than 31 percent, and your back-end debt-to-income ratio (which includes all of your monthly payment obligations) should be no more than 43 percent.

There is also the possibility that certain creditors have more stringent requirements. During the application process, you are required to report to the FHA any and all outstanding debt as well as open lines of credit.

Gift Funds for Down Payments and Closing Costs

Gift funds in a presentIt's possible that borrowers who want to buy a house with an FHA loan may want some assistance with the down payment. The FHA loan guidelines not only control the origin of the money in this manner, but they also govern who is allowed to provide presents in this manner.

You should always be prepared to offer supporting documents when asked about the origin of any gift funds that is related with a transaction involving your home loan. Donations are sometimes made by:
  • A member of the borrower's family
  • The borrower's place of business or their labor union
  • A very good friend of the borrower who has a well-defined and demonstrable interest in the borrower.
  • A group dedicated to charity work.
  • A government agency or other public institution that administers a program that offers help to families with low or moderate incomes or to individuals who are purchasing their very first house.

FHA Loan Requirements for Co-Borrowers

An FHA loan may include a co-signer that is another borrower, even if that borrower will not reside on the property. When one person applies for a mortgage loan with another person who will not be living in the home, the lender will look at both applicants' credit scores, as well as their incomes, obligations, and assets.

Because an occupying borrower's non-occupying co-borrower may be included in the underwriting process, the odds of the occupying borrower being approved often increase. Co-borrowers who do not inhabit the property often have higher incomes or better credit scores, which might boost the likelihood that the primary borrower will be able to purchase the house.

If you include a co-borrower who does not reside in the property, the FHA requires that the co-borrower be a "family member." If your co-borrower, is not related, you could be required to make a greater initial payment.

The following types of relatives are considered to be members of a family by the FHA:

  • Adopted child
  • Aunt or uncle
  • Brother, step-brother
  • Child, parent, or grandparent
  • Domestic partner
  • Foster child
  • Foster parent or foster grandparent
  • Sister, step-sister
  • Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law
  • Spouse
  • Step-parent or step-grandparent


In conclusion, it is important to remember that a borrower can only have one FHA mortgage at a time. If they want to obtain another FHA loan, the first one needs to be paid off first, unless the borrower meets one of the 4 exceptions. This is an important rule to remember when considering an FHA loan.

Recommended Reading

  1. Residency Requirements for an FHA Loan: Who qualifies?
  2. Find out how much a seller can contribute on a FHA loan!
  3. FHA Loan Guidelines: Important Information for Students