The Core Requirements for an FHA Loan

An FHA loan requires you to meet five main conditions: a credit score of at least 580 (though some lenders go as low as 500), a debt-to-income ratio of 43 percent or lower, a down payment of 3.5 percent of the home price, proof of steady income for the past two years, and a valid Social Security number. You also need to be a U.S. citizen or permanent resident and at least 18 years old. The property itself must be your primary residence — not an investment property or vacation home.

The credit score threshold matters because it determines your down payment. A score of 580 or higher lets you put down 3.5 percent. If your score is between 500 and 579, most lenders require 10 percent down instead, which defeats much of the FHA program's purpose. Your debt-to-income ratio is calculated by adding up all your monthly debt payments — car loans, credit cards, student loans, child support — and dividing by your gross monthly income. The result must be 43 percent or lower.

Income verification is straightforward: lenders look at your last two years of tax returns, recent pay stubs, and a letter from your employer confirming your job and salary. If you are self-employed, you will need two years of business tax returns and possibly a profit-and-loss statement. If your income has changed recently, lenders want to see documentation of the change and a reason they should expect it to continue.

Key Takeaways

  • You need a credit score of at least 580, a down payment of 3.5 percent, and a debt-to-income ratio of 43 percent or lower.
  • Lenders verify income using two years of tax returns and recent pay stubs, so self-employed borrowers should have business returns ready.
  • The property must be your primary residence, and you must be a U.S. citizen or permanent resident at least 18 years old.
  • A lower credit score (500–579) is possible but usually requires a 10 percent down payment instead of 3.5 percent.
  • Your debt-to-income ratio includes all monthly debt payments divided by gross monthly income, and lenders calculate this before approving the loan.

How Lenders Calculate Your Debt-to-Income Ratio

Your debt-to-income ratio is the number lenders use to decide whether you can afford the mortgage payment alongside everything else you owe. Add up every monthly debt payment: car loans, credit cards (use the minimum payment, not the balance), student loans, child support, alimony, and any other recurring debt. Do not include utilities, groceries, or insurance. Then divide that total by your gross monthly income — the amount before taxes are taken out.

For example, if your monthly debts total $1,200 and your gross monthly income is $4,000, your ratio is 30 percent ($1,200 ÷ $4,000). FHA allows up to 43 percent. The mortgage payment itself counts toward this ratio, so lenders estimate what your new payment will be and include it in the calculation. This is why a lower down payment can sometimes hurt you: a smaller down payment means a larger loan, which means a larger monthly payment, which can push your ratio over 43 percent.

Some lenders will go slightly higher than 43 percent if you have compensating factors — a large savings account, a history of on-time payments, or a significant increase in income. But this is not may provide, and different lenders have different policies. It is worth asking your lender whether they have flexibility.

Credit Score and Payment History Requirements

The FHA does not set a hard rule about how recent your credit problems can be, but lenders do. Most want to see at least two years since a foreclosure, one year since a short sale, and no active collections or charge-offs. Late payments older than two years are less damaging than recent ones. A single 30-day late payment from five years ago is usually not a barrier; a 30-day late payment from three months ago is.

Bankruptcy is not an automatic disqualification. FHA allows you to borrow two years after a Chapter 7 bankruptcy discharge or one year after a Chapter 13 bankruptcy if you are still making payments. Some lenders are stricter and wait longer. The key is showing that you have rebuilt credit since the bankruptcy — a secured credit card, on-time payments on other accounts, or a clean record since the discharge date.

If you have no credit history at all, some lenders will work with you using alternative credit data: a history of on-time rent payments, utility payments, or insurance payments. You may need to provide letters from landlords or service providers. This is less common but possible, especially with credit unions or community lenders.

Income Verification and Employment History

Lenders verify income by requesting your last two years of federal tax returns, your most recent pay stubs (usually the last 30 days), and a written verification of employment from your employer. The verification letter should state your job title, start date, current salary, and whether your employment is permanent. If you have been at your current job for less than two years, lenders will ask for documentation of your previous job and may want to see a reason for the change — a promotion, relocation, or career move is fine; frequent job-hopping raises questions.

Self-employed borrowers face stricter scrutiny. You will need two years of business tax returns, a current profit-and-loss statement, and sometimes a business license or articles of incorporation. Lenders average your income over two years, so if your business is new or income is rising, they may use a conservative figure. If your business is seasonal, they may average across the full two years rather than using your highest year.

Bonus income, commission, and overtime are counted if you have received them for at least two years and can show they are likely to continue. Bring documentation: tax returns showing the income, a letter from your employer confirming it is ongoing, or a contract showing future payments. If you recently started receiving bonus or commission income, lenders may not count it yet.

Down Payment and Savings Requirements

The FHA requires a minimum down payment of 3.5 percent of the purchase price. For a $200,000 home, that is $7,000. The down payment can come from your own savings, a gift from a family member, or a grant from a nonprofit or government program. If you receive a gift, the person giving it must provide a letter stating it is a gift, not a loan, and does not need to be repaid.

Lenders do not require you to have a large savings account after closing, but they do want to see that the down payment is real money you have access to — not borrowed. If you are using a gift, the donor's bank statement showing the transfer is standard documentation. If you are using your own savings, your bank statements for the past 60 days will be reviewed to show the money has been there and is not a recent loan.

Some programs and nonprofits offer down payment assistance or grants specifically for FHA borrowers. These vary by state and locality. Your lender can tell you whether you are in an area with down payment help programs, or you can contact your local housing authority or a HUD-approved housing counselor to learn what is available in your area.

Property and Appraisal Standards

The property must meet FHA minimum property standards, which means it has to be safe, sound, and sanitary. An FHA appraiser will inspect it and flag any major issues: a roof that is failing, foundation cracks, electrical hazards, or plumbing that does not work. Minor cosmetic issues do not matter, but structural or safety problems must be fixed before the loan closes. The seller is usually responsible for repairs, though you can negotiate who pays.

The appraisal also determines the home's value for loan purposes. If the appraised value is lower than the purchase price, the loan amount drops, which means you either need to pay more out of pocket or renegotiate the price with the seller. This is common in competitive markets where homes are bid up above their actual value.

The property must be a single-family home, a condo, a townhouse, or a two- to four-unit building where you live in one unit. Mobile homes are allowed if they meet FHA standards. Investment properties, vacation homes, and properties you do not intend to occupy as your primary residence do not may have access to.

Frequently Asked Questions

What if my credit score is below 580?

Most lenders will not approve an FHA loan below 580, but some will go as low as 500 if you put down 10 percent instead of 3.5 percent. A few credit unions and community lenders have more flexible policies. Contact lenders directly to ask about their minimum score; do not assume you are automatically disqualified.

Can I use a co-borrower to help me meet the requirements?

Yes. A co-borrower's income counts toward your debt-to-income ratio, and their credit score is considered alongside yours. Both of you will be on the loan and the deed. The lender will verify both incomes and review both credit histories. This is common when one spouse has stronger income or credit than the other.

Do I need to have a job offer in writing before I apply?

No, but if you are changing jobs, lenders want to see a written offer or contract showing the new job, start date, and salary. If you are already employed, your current job is what counts. Lenders do not usually require a job offer letter unless you are relocating or changing careers.

What counts as proof of permanent residency?

A green card, employment authorization document (EAD), or other USCIS-issued document showing permanent resident status is what lenders need. Temporary visas do not may have access to. If you are a U.S. citizen, a passport or birth certificate is sufficient.

Can I borrow money for the down payment?

No. The down payment must be your own funds or a gift. Borrowed money does not count. If you take out a personal loan or use a credit card to fund the down payment, lenders will see the new debt on your credit report and it will increase your debt-to-income ratio, likely disqualifying you.