FHA Loan Requirements: Complete Guide to Qualifying in 2025

FHA loan requirements include a minimum credit score of 580 for 3.5% down payment (or 500-579 with 10% down), a debt-to-income ratio under 43% (up to 50% with compensating factors), steady employment for 2 years and the property must meet FHA minimum property standards. FHA loans are government-insured mortgages designed for first-time buyers and those with less-than-perfect credit.

What Is an FHA Loan?

FHA loans are mortgages insured by the Federal Housing Administration. The government doesn’t lend money directly—instead, it insures loans made by approved lenders. This insurance protects lenders against losses if borrowers default, allowing them to offer more flexible qualifying requirements.

Key FHA loan features:

• Lower credit score requirements than conventional loans
• Down payments as low as 3.5%
• Higher debt-to-income ratios allowed
• Gift funds can cover entire down payment
• Seller can contribute up to 6% toward closing costs
• Available for primary residences only

FHA Credit Score Requirements

Your credit score determines your down payment requirement and whether you qualify at all.

Credit Score	Down Payment Required	Qualification
580+	3.5%	Standard qualification
500-579	10%	Limited lenders available
Below 500	N/A	Does not qualify

Important notes:

• Lenders can set higher minimums (many require 620+)
• Your middle score counts (if you have three scores, the middle one is used)
• Joint applicants use the lower of the two middle scores

Marcus Johnson had scores of 590, 605 and 612 across the three bureaus. His middle score of 605 qualified him for a 3.5% down payment. His wife had scores of 565, 580 and 588—her middle score of 580 just barely made the cutoff.

Improving Your Credit for FHA

If your score falls short, these strategies can help:

Quick wins (1-2 months):

• Pay credit card balances below 30% of limits
• Dispute errors on credit reports
• Become an authorized user on a family member’s old account

Longer-term (3-6 months):

• Make all payments on time
• Don’t open new credit accounts
• Let accounts age without closing them

FHA Down Payment Requirements

The minimum down payment depends on your credit score:

• 580+ credit score: 3.5% down payment
• 500-579 credit score: 10% down payment

On a $300,000 home:

• 3.5% = $10,500
• 10% = $30,000

Acceptable Down Payment Sources

FHA is flexible about where your down payment comes from:

Allowed sources:

• Personal savings
• Gift from family member (with gift letter)
• Gift from employer or labor union
• Down payment assistance programs
• Government grants
• Loans from retirement accounts (401k, IRA)

Gift letter requirements:

• Donor’s name and relationship to you
• Donor’s address and phone number
• Dollar amount of gift
• Statement that no repayment is expected
• Donor’s signature

Jennifer Martinez received a $15,000 gift from her parents for her down payment. She provided a signed gift letter and her parents’ bank statement showing they had the funds. The lender verified the transfer and approved her loan.

Down Payment Assistance Programs

Many state and local programs help with FHA down payments:

Types of assistance:

• Grants (free money, no repayment)
• Forgivable loans (disappear after 5-10 years of ownership)
• Deferred loans (repay when you sell or refinance)
• Low-interest second mortgages

Check your state housing finance agency for available programs. Many have income limits and first-time buyer requirements.

FHA Debt-to-Income Ratio Requirements

DTI measures your monthly debt payments against gross monthly income. FHA uses two calculations:

Front-end ratio (housing only):

• Mortgage payment + property taxes + insurance + HOA + MIP
• Maximum: 31% of gross income

Back-end ratio (all debts):

• Front-end + car payments + student loans + credit cards + other debts
• Maximum: 43% of gross income

Compensating Factors Allow Higher DTI

With strong compensating factors, FHA allows DTI up to 50%:

Compensating factors include:

• Large cash reserves (3+ months of payments)
• Minimal payment increase from current housing
• Significant additional income not used for qualifying
• Residual income exceeds requirements
• No discretionary debt

Example calculation:

Robert Chen earns $6,500/month gross. His proposed housing payment is $1,800 and other debts total $500.

• Front-end DTI: $1,800 ÷ $6,500 = 27.7% ✓
• Back-end DTI: $2,300 ÷ $6,500 = 35.4% ✓

Both ratios fall within limits, so Robert qualifies.

What Counts as Monthly Debt?

Included in DTI:

• Proposed mortgage payment (PITI + MIP)
• Car loans and leases
• Student loans (even if deferred)
• Credit card minimum payments
• Personal loans
• Child support and alimony
• Other mortgage payments

Not included:

• Utilities
• Cell phone bills
• Car insurance
• Health insurance
• Streaming subscriptions
• Groceries and discretionary spending

FHA Employment and Income Requirements

FHA wants to see stable, ongoing income that will continue.

Employment History

Standard requirement: 2 years of employment history in the same line of work

Acceptable situations:

• Same employer for 2+ years
• Different employers in the same field
• Recent college graduate entering related field
• Military service transitioning to civilian work

Requires explanation:

• Employment gaps over 30 days
• Frequent job changes
• Significant income decreases
• Career field changes

Income Documentation

W-2 employees need:

• 2 years of W-2 forms
• 30 days of pay stubs
• Employer verification

Self-employed borrowers need:

• 2 years of personal tax returns
• 2 years of business tax returns
• Year-to-date profit and loss statement
• Business license or CPA letter

Income Types That Count

Fully counted:

• Base salary and hourly wages
• Overtime (with 2-year history)
• Bonuses (with 2-year history)
• Commission (with 2-year history)
• Social Security and pension
• Disability income
• VA benefits

Partially counted:

• Rental income (75% of net rent)
• Part-time income (must show 2-year history)
• Seasonal income (averaged over 2 years)

Requires documentation:

• Alimony and child support (must continue 3+ years)
• Trust income
• Investment income

FHA Mortgage Insurance Premium (MIP)

All FHA loans require mortgage insurance, regardless of down payment size.

Upfront MIP (UFMIP)

• Amount: 1.75% of base loan amount
• Payment: Added to loan balance (not paid at closing)
• Refundable: Partially, if you refinance to another FHA loan within 3 years

On a $290,000 loan, upfront MIP = $5,075. Your loan balance becomes $295,075.

Annual MIP

Annual MIP is divided into monthly payments added to your mortgage payment.

Loan Amount	LTV	Annual MIP
≤ $726,200	> 95%	0.55%
≤ $726,200	≤ 95%	0.50%
> $726,200	> 95%	0.75%
> $726,200	≤ 95%	0.70%

Example monthly MIP:

$290,000 loan with 3.5% down (96.5% LTV):

• Annual MIP: $290,000 × 0.55% = $1,595
• Monthly MIP: $1,595 ÷ 12 = $133

How Long Do You Pay MIP?

For loans with less than 10% down: MIP lasts the entire loan term (30 years)

For loans with 10%+ down: MIP drops off after 11 years

This is a major difference from conventional loans, where PMI drops at 20% equity. Many borrowers refinance to conventional once they reach 20% equity to eliminate the insurance.

FHA Property Requirements

The property must meet FHA Minimum Property Standards (MPS). An FHA appraisal checks both value and condition.

Property Types Allowed

Eligible:

• Single-family homes
• 2-4 unit properties (must occupy one unit)
• FHA-approved condos
• Manufactured homes (on permanent foundation)
• Some townhouses

Not eligible:

• Investment properties (must be primary residence)
• Vacation homes
• Commercial properties
• Properties with income-producing features (farms with working acreage)

Minimum Property Standards

FHA appraisers look for:

Safety issues:

• Functioning heating system
• Safe electrical wiring
• No lead paint hazards (for pre-1978 homes)
• Secure handrails on stairs
• No exposed wiring

Structural soundness:

• Solid foundation without major cracks
• Roof with 2+ years of remaining life
• No significant water damage
• Adequate drainage away from foundation

Habitability:

• Working plumbing
• Functioning kitchen and bathrooms
• Adequate natural light and ventilation
• No pest infestations

Common FHA Appraisal Issues

Problems that can delay or kill deals:

Issue	Solution
Peeling paint (pre-1978 home)	Seller must scrape and repaint
Missing handrails	Install before closing
Broken windows	Replace before closing
Non-functional appliances	Repair or replace
Active roof leaks	Roof repair required
Foundation cracks	Engineer inspection may be required

Angela Washington’s FHA appraisal flagged peeling exterior paint on a 1965 home. The seller had to scrape, prime and repaint affected areas before the loan could close—adding 2 weeks to the timeline.

FHA Loan Limits

FHA sets maximum loan amounts by county. Limits are updated annually based on home prices.

2024 FHA loan limits:

Area Type	Floor	Ceiling
Low-cost areas	$472,030	—
High-cost areas	—	$1,089,300
Alaska, Hawaii, Guam, Virgin Islands	—	$1,633,950

Most counties fall between the floor and ceiling. Check the HUD website for your specific county limit.

If you need more than the limit:

• Consider a conventional loan
• Look at jumbo loans
• Buy in a lower-cost area

FHA vs Conventional Loans

Feature	FHA	Conventional
Minimum credit score	580 (500 with 10% down)	620
Minimum down payment	3.5%	3%
Mortgage insurance	Required for loan term	Drops at 20% equity
DTI limits	43-50%	43-45%
Seller concessions	Up to 6%	Up to 3-6%
Property standards	Stricter	More flexible
Loan limits	County-based	Higher conforming limits

Choose FHA if:

• Credit score is 580-619
• You have limited savings for down payment
• DTI is higher than 43%
• You’re using gift funds for entire down payment

Choose conventional if:

• Credit score is 700+
• You have 10%+ down payment
• You want PMI to drop automatically at 20%
• Property has condition issues

How to Apply for an FHA Loan

Step 1: Check Your Credit

Pull your credit reports from AnnualCreditReport.com. Review for errors and check your scores. If below 580, consider waiting and improving your credit.

Step 2: Calculate Your Budget

Use the 28/31 front-end ratio as a guide. If you earn $5,000/month, your maximum housing payment is roughly $1,550.

Step 3: Get Pre-Approved

Submit your documents to an FHA-approved lender:

• 2 years of tax returns
• 2 years of W-2s
• 30 days of pay stubs
• 2-3 months of bank statements
• Government ID

Step 4: Find a Home

Work with a real estate agent to find an FHA-eligible property within your budget and the loan limits for your area.

Step 5: Make an Offer and Close

After your offer is accepted:

• FHA appraisal ordered (checks value and condition)
• Underwriting review
• Clear conditions
• Close and get your keys

Timeline: 30-45 days from contract to closing.

Frequently Asked Questions

What credit score do I need for an FHA loan?

Minimum 580 for 3.5% down payment, or 500-579 with 10% down. However, many lenders set their own minimums at 620 or higher. Shop multiple lenders if your score is between 580-619.

Can I get an FHA loan with collections or charge-offs?

Yes. FHA doesn’t require you to pay off collections or charge-offs to qualify. However, judgments and tax liens must typically be paid or in a payment plan.

How much are FHA closing costs?

Expect 2-5% of the loan amount in closing costs. On a $300,000 loan, that’s $6,000-$15,000. The seller can contribute up to 6% toward your closing costs.

Can I use an FHA loan to buy a fixer-upper?

Yes, through the FHA 203(k) loan program. This combines purchase price and renovation costs into one mortgage. There’s a Standard 203(k) for major renovations and a Limited 203(k) for repairs under $35,000.

How long do I have to live in an FHA home?

FHA requires you to occupy the property as your primary residence for at least one year. After that, you can rent it out and buy another primary residence.

Can I have two FHA loans at once?

Generally no—FHA is for primary residences only. Exceptions exist for relocation (100+ miles), family size increase, or co-borrower leaving the household.

Is FHA only for first-time buyers?

No. Anyone can use FHA regardless of whether they’ve owned before. There are no first-time buyer requirements, though many first-timers choose FHA for the lower down payment and credit requirements.