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FHA loan requirements

Find out if you qualify for an FHA loan and what you'll need to apply

Profile picture of Michele Lerner
by Michele Lerner Mortgage & Real Estate Contributing Editor
young family moving into a new house

Who qualifies for an FHA loan?

Almost anyone can qualify for an FHA loan. You need a FICO credit score of at least 580 to qualify for a 3.5 percent down payment. If you have a FICO credit score of 500–579, you can still qualify for an FHA loan with a 10 percent down payment from certain lenders.

FHA loan qualifications are relatively straightforward, but lenders can impose their own minimums on credit scores. Borrowers pay private mortgage insurance (PMI) every month, which is usually around 0.85 percent of the loan amount. The PMI protects the lender in case the borrower defaults on the loan and is rolled into your monthly payment. Once you have paid off enough of the loan that you owe 78 percent or less of the home’s value, you can refinance your FHA mortgage to a conventional mortgage and get rid of your PMI payment.

What are the requirements for an FHA loan?

To qualify for an FHA mortgage loan, the FHA guidelines state that applicants must meet the following requirements:

  1. Minimum down payment of 3.5 percent
    An FHA home loan requires a minimum down payment of 3.5 percent of the total home price if you have at least a 580 credit score. You’ll need to make a down payment of 10 percent of the home price if your credit score is 500-579.
  2. Minimum credit score of 500
    The absolute lowest credit score required for an FHA loan to get approved is 500. Keep in mind that a higher credit score will get a lower interest payment, so it’s a good idea to spend a few months fixing your credit score by paying down your debts and making payments on time before you apply for an FHA loan.
  3. Debt-to-income ratio under 50 percent
    The debt-to-income ratio measures how much total debt you have compared to your total income. The lower your debt-to-income ratio, the more money you have to pay toward things besides debt every month. You want a low debt-to-income ratio to get approved for a low interest rate. Most lenders won’t offer you an FHA loan if your debt-to-income ratio is over 50 percent, and some will only accept your application if your debt-to-income ratio is 43 percent or lower.
  4. Meet FHA loan limits
    In 2018, the FHA loan limit in low-cost areas was $294,515. In 223 counties, FHA loan limits remain at $275,665. In high-cost areas, the FHA loan limit is $679,650. The loan limits change every year and vary based on your specific location.
  5. Home appraisal by an FHA approved appraiser
    Every home purchased through the FHA home loan program must go through an appraisal process. You’ll need an FHA-approved appraiser to assess the home’s value and make sure it meets all of FHA’s minimum property requirements.
  6. Mortgage insurance
    With FHA loans, borrowers must pay mortgage insurance premiums which can be rolled into the financed loan amount. These monthly installments protect the lender in case the borrowers default on the loan.
  7. Two years of employment at the same company
    To be eligible for a mortgage, lenders must verify the borrower’s employment for the most recent two years. Typically, a borrower’s income is considered stable when he or she has been employed in a current job for six months or longer.
  8. Non-occupying co-borrowers allowed
    FHA requires that at least one person obligated on the loan lives in the home as a primary residence. When there are two or more borrowers but one or more will not live in the property as a primary residence, the maximum mortgage is limited to 75 percent loan-to-value (LTV).
  9. Must meet legal age requirements in the state of residence
    To get an FHA loan, you must meet your state’s legal age requirements to sign a mortgage. Generally this is 18.

Additional FHA loan FAQs

What is an FHA funding fee?
The FHA funding fee includes both the upfront fee and monthly premium that borrowers must pay. These fees are known as the Upfront Mortgage Insurance Premium (UFMIP) and the Mortgage Insurance Premium (MIP). The upfront fee is equivalent to 2.25 percent of your mortgage amount. The MIP is a fee added to your monthly payment. This necessary fee protects lenders from potential loss. Borrowers can finance the funding fee by including it in their mortgage. If you refinance into another FHA loan, the fee is refundable.

What is the interest rate on an FHA loan?
FHA mortgage rates remain near historic lows. On a 30-year fixed-rate FHA loan, the current average interest rate hovers around 4.75 percent. On a 15-year fixed-rate FHA loan, the current average interest rate is 4.87 percent. FHA mortgage rates remain similar to mortgage rates on traditional home loans. If the average interest rate on a 30-year fixed rate FHA mortgage stands at 4.75 percent, the traditional mortgage rate is about the same.

How much are FHA closing costs?
FHA closing costs average around 2–5 percent of the overall mortgage amount. Homebuyers purchasing a property for $200,000 can expect to pay $3,000–$5,000 for closing costs. However, homebuyers should note that costs vary depending on the lender. Lenders charge several different fees that make up the closings costs.

How many times can you get an FHA loan?
Borrowers can technically use FHA loans as many times as they like. The exception is if the FHA loan has a loan-to-value higher than 75 percent; only one of these loans may be outstanding at any one time. Exemptions apply with extenuating circumstances such as changes in family size, job relocation and scenarios where a co-borrower vacates the property with an existing FHA loan to purchase a home of their own.

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Is it a good idea to get an FHA loan?

An FHA loan is a good idea for homebuyers who have a low to moderate income and may not have funds available for a large down payment. Homebuyers with good credit only have to put down 3.5 percent with an FHA loan. Conventional loans often require a much larger down payment. This type of loan is also a good idea for homebuyers with less-than-perfect credit as FHA loans maintain lenient credit score requirements. If you are looking to move into your home fast, an FHA loan is a good option.

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Profile picture of Michele Lerner
by Michele Lerner Mortgage & Real Estate Contributing Editor

Michele Lerner, author of “HOMEBUYING: Tough Times, First Time, Any Time”, has been writing about personal finance and real estate for more than two decades. Michele writes for regional, national and international publications in print and online for a variety of audiences including consumers, real estate investors, business owners and real estate professionals.