Updated 2023 – FHA Loan Requirements
Guidelines on home loans change every year. Knowing what the FHA loan requirements are, is the first step toward getting the home of your dreams.
An FHA loan isn’t always the best option, but it is perfect for first time home buyers who may have credit blemishes or don’t have a 20% down payment to make on the house.
- 1. FHA Credit score can be as low as 580, sometimes even lower.
- 2. FHA has no income limitation.
- 3. FHA does have limitations on loan amount.
- 4. You don’t have to be a first time home buyer.
- 5. Buy a mobile home and manufactured home with an FHA loan.
- 6. You can build a home. FHA construction loan.
- 7. You can buy a fixer-upper.
- 8. FHA Mortgage insurance is for life.
- 9. Refinance using an FHA streamline without income documentation or an appraisal.
- 10. Homeowners and property taxes are taken care of.
- 11. FHA interest rates are lower.
- 12. Had a bankruptcy? No problem.
- 13. FHA is easy to qualify for after a foreclosure.
1. FHA loan requirements for credit score.
Can be as low as 620, sometimes even lower.
Each lender has different credit requirements. Some may have a minimum credit requirement of 680, while others will go as low as 500.
It will be tough to find a lender who will go down to a 500; but they are out there.
Coole Home: We currently have a minimum requirement of 620. Lower score accepted on a case by case basis.
FHA loan program will allow financing down to a 500 credit score, which is not common!
For borrowers with scores between 500-579 down payment requirement is 10%, and scores with 580 and up are only required to make a 3.5% down payment.
2. FHA requirements for income.
FHA has no income limitations.
Some loan programs have a cap on how much income you can make. With FHA, there is no cap. You can make six figures a year and still qualify.
Here are the basic FHA income requirements:
- Borrowers must have a two-year history of steady employment and income.
- The borrower’s income must be verifiable through pay stubs, W-2s, and tax returns.
Steady employment and income means having a stable job and a reliable source of income that is likely to continue in the future. The FHA typically requires borrowers to have a consistent employment history for at least two years, which demonstrates their ability to maintain stable employment and income.
Steady income means that you have a predictable and reliable stream of income that is likely to continue. This could come from a variety of sources, such as salary, wages, commissions, or self-employment income.
The lender will typically review your income documentation, such as pay stubs, tax returns, and bank statements, to verify that you have a consistent and reliable source of income.
3. FHA does have limitations on loan amount.
Each county has a different limit and they change every year.
The below examples are updated for year: 2023.
San Diego’s FHA loan limit is $$977,500. Los Angeles is $1,089,300.
For the state of Florida: Baker County has a FHA limit of $526,700, Broward county has a limit of $557,750.
Texas FHA limit: Anderson County has a limit of $472,030, Bexar County has a limit of $524,400, Dallas FHA limit is $531,300.
As you can see, each county and state is different.
Why does FHA have limitations on loan amounts?
The FHA has limitations on loan amounts to ensure that it can continue to fulfill its mission of providing affordable mortgage financing to low- and moderate-income borrowers.
By capping the loan amounts, the FHA can focus its resources on borrowers who may not be able to obtain financing through traditional channels, such as those with lower credit scores or smaller down payments.
Additionally, the loan limits help to ensure that the FHA does not take on too much risk by insuring loans that are too large. The loan limits vary by location and are updated annually based on the median home prices in each county.
To review a list of the county limits you can go to HUDS official webiste.
4. You don’t have to be a first time home buyer.
FHA loans and first time home buyer goes hand in hand. BUT you don’t need to be a first-time buyer to use the program.
However, there are some specific requirements and restrictions that apply to non-first-time homebuyers.
For example, if you currently have an FHA loan and want to apply for another one, you may be limited in the amount you can borrow, and you may have to meet certain criteria, such as having made your previous mortgage payments on time.
5. Buy a mobile home and manufactured home with an FHA loan.
FHA is only for primary residences, but you can live in one unit and rent out the others if you purchase a multi-unit.
6. You can build a home. FHA construction loan.
The minimum credit score requirement is 620 for an FHA construction loan, and not all lenders offer this program. It also takes a long time to build a home and is not usually recommended when purchasing a home for the first time. It’s a stressful process.
Are you interested in building a home? Apply for a FHA Construction Loan.
7. You can buy a fixer-upper.
Yes, you can buy a property that needs a lot of repairs and get the cost of repairs financed into the loan. It’s called an FHA 203K.
Keep in mind that the FHA program is only for primary residences. You can’t buy a home with the intention of flipping it to someone else once repairs are done.
The FHA 203K program allows borrowers to finance the purchase of a home and the cost of necessary repairs or renovations into a single loan.
There are two types of FHA 203(k) loans: the “streamline” 203(k) and the standard 203(k).
The streamline 203(k) is designed for less extensive repairs and renovations, with a maximum loan amount of $35,000.
The standard 203(k) is for more significant repairs and renovations, with no maximum loan amount (although there are limits based on the local FHA loan limits).
More info: FHA 90 day flip rule
8. FHA Mortgage insurance is for life.
FHA requires mortgage insurance to be paid. Whether you are making a 20% down payment or a 3.5% down payment, it’s required. The only way you can get rid of it is by refinancing out of the loan.
FHA requires mortgage insurance to protect lenders in case borrowers default on their FHA loans. FHA mortgage insurance is also known as MIP (mortgage insurance premium) and is paid by borrowers as a part of their monthly mortgage payment.
Unlike conventional loans, FHA loans have more lenient credit and income requirements, which means that there is a higher risk of default. The mortgage insurance helps offset that risk, making it more attractive for lenders to offer FHA loans to borrowers.
The mortgage insurance also provides benefits to borrowers, as it allows them to qualify for an FHA loan with a lower down payment than would be required for a conventional loan. This makes homeownership more accessible to individuals who may not have the savings for a larger down payment.
9. Refinance using an FHA streamline without income documentation or an appraisal.
When interest rates go down, you can refinance without having to pay for an appraisal or providing any income docs; as long as it’s a rate and term refinance (lowering monthly payment)
To refinance with a FHA streamline loan, you will need to have an existing FHA-insured mortgage and meet the credit requirements.
Additionally, you’ll need to have a good payment history on your current FHA loan and have made at least six monthly payments before you can apply for a refinance.
Once you meet the eligibility criteria, you can apply for an FHA Streamline Refinance, which is designed to simplify the refinancing process by reducing the amount of documentation required.
With an FHA Streamline Refinance, you may be able to lower your monthly mortgage payments and potentially shorten the term of your loan.
If you want to take some money out to pay for bills or home improvements, an appraisal and income verification is required. This type of refinance is called a “cash-out” refinance.
Read more: FHA refinance info
10. Homeowners and property taxes are taken care of.
FHA requires the monthly mortgage payment to include property taxes and homeowners insurance. When the bill is due each year, the lender will pay for it, so you don’t have to worry!
When property taxes are due, it can be quite a large bill. For example, in San Diego, property taxes are estimated at 1.25% a year. If you purchase a home for $600,000, that is $7500 that you would have to come up with every year!
It’s much more manageable when paid every month. You don’t want the county repossessing your home because of unpaid taxes.
Homeowners and property taxes are required as part of the payment for FHA loans because they are necessary expenses associated with owning a property.
These taxes are levied by state and local governments to fund public services such as schools, police, fire departments, and other municipal services.
As a condition of the FHA loan, the borrower is required to pay these taxes to ensure that the property remains in good standing and that the government continues to provide these essential services.
Additionally, these payments are included in the borrower’s monthly mortgage payment to ensure that they are made on time and in full. This helps to protect the lender’s investment in the property and reduce the risk of default.
11. FHA interest rates are lower.
Rates are typically lower on an FHA loan than a Conventional loan because it is a government loan program, and the government offers incentives to lenders for making the program available to their clients.
Because lenders are taking on less risk, they are more willing to offer lower interest rates to borrowers.
Additionally, FHA loans are backed by the government, which means that lenders are guaranteed to be repaid in the event of default. This reduces the lender’s risk further and allows them to offer more competitive interest rates.
12. Had a bankruptcy? No problem.
Having a bankruptcy on your credit record isn’t doomsday. You can get a home loan after a bankruptcy. You must have reestablished credit after the bankruptcy (no late payments, collections, repossessions).
There is also a waiting period.
The waiting period to be eligible for an FHA loan after a bankruptcy depends on the type of bankruptcy filed and the circumstances of the bankruptcy.
Chapter 7 requires a waiting period of 2 years from the discharge date.
Chapter 13 requires 12 months of on time trustee payments to be made to qualify and the borrower has the approval of the bankruptcy court to enter into a new mortgage..
13. FHA is easy to qualify for after a foreclosure.
You can purchase a home again after a foreclosure. Just like the bankruptcy requirements you must have re-established credit (no late payments, collections or reposessions) after the foreclosure.
There is also a waiting period.
There is a waiting period of 3 years from when the home was sold. You can learn more about this by reading the following article >> Buying a house after foreclosure
Read more: FHA vs. Conventional