To be eligible for an FHA loan, borrowers must meet the following lending guidelines:
- Down payment of at least 3.5% of the purchase price. The down payment can come from a verified gift from a relative or government program.
- FICO score of 500-579 with 10% down or a FICO score of 580 or higher with 3.5% down.
- Steady employment history or 2 years work experience with the same employer.
- Income is verifiable through pay stubs, federal tax returns, and bank statements.
- Loan is used for a primary residence.
- Property is appraised by an FHA-approved appraiser and meets HUD property guidelines.
- Your front-end debt ratio (monthly debt payments, excluding a mortgage) should not exceed 31% of your gross monthly income. Lenders may allow a ratio up to 40% in some cases.
- Your back-end debt ratio (mortgage, plus all monthly debt payments) should not exceed 43% of your gross monthly income. Lenders may allow a ratio up to 50% in some cases.
- If you experienced a bankruptcy, you must wait 2 years to apply. If you experienced a foreclosure, you must wait 3 years to apply. In the interim, you must also have re-established a positive credit history. Lenders may make exceptions on waiting periods for borrowers with extenuating circumstances.
Who is an FHA loan best for?
FHA loans are ideal for borrowers with little cash saved up for a down payment, and those who have less-than-ideal credit and cannot qualify for a conventional loan. FHA loans tend to be popular with first-time homebuyers, as well as those with low to moderate incomes. Repeat buyers can get an FHA loan, too, as long as they use it to buy a primary residence.