The core FHA requirements: credit, income, and debt

An FHA loan requires three things: a credit score of at least 580 (though some lenders go as low as 500 with a larger down payment), a debt-to-income ratio below 43 percent, and proof that you can repay the loan. You also need a valid Social Security number, legal residency, and a job history showing you've worked for the same employer for at least two years — though gaps are acceptable if you can explain them.

The credit score matters less with FHA than with conventional loans because the Federal Housing Administration insures the lender against your default. A 580 score is genuinely achievable even if you've had past problems; what matters more is recent payment history. If you've had late payments, they should be at least two years old. Bankruptcy is not automatic disqualification — FHA allows it if you've waited two years after discharge or three years after a Chapter 13 dismissal.

Your debt-to-income ratio is the monthly debt payments you already owe divided by your gross monthly income. This includes car loans, credit cards, student loans, child support, and the new mortgage payment itself. If you earn $5,000 a month and already owe $1,500 in monthly debt, your ratio is 30 percent — you have room for a mortgage payment of about $650 before hitting the 43 percent ceiling.

Key Takeaways

  • You need a credit score of at least 580, though scores below 620 typically require a larger down payment and higher interest rate.
  • Your total monthly debt payments cannot exceed 43 percent of your gross monthly income, including the new mortgage.
  • You must show two years of employment history, though you can change jobs if your new position is in the same field.
  • FHA allows down payments as low as 3.5 percent, but you will pay mortgage insurance for the life of the loan.
  • Recent late payments, collections, or foreclosure do not automatically disqualify you if enough time has passed.

Down payment and mortgage insurance costs

FHA loans let you put down as little as 3.5 percent of the home's purchase price. On a $250,000 home, that's $8,750. This is the main reason FHA exists — it opens homeownership to people who haven't saved a large down payment. The trade-off is that you pay mortgage insurance, which protects the lender if you stop paying.

Mortgage insurance comes in two forms with FHA. The first is an upfront premium, usually 1.75 percent of the loan amount, which most people roll into the mortgage balance rather than pay in cash. The second is an annual premium you pay monthly as part of your mortgage payment. The annual rate depends on your loan amount, your down payment, and the loan term, but typically ranges from 0.55 percent to 0.80 percent of the loan balance per year. On a $240,000 loan, that could be $1,320 to $1,920 per year, or $110 to $160 per month.

You cannot remove FHA mortgage insurance if you put down less than 10 percent — it stays for the life of the loan. If you put down 10 percent or more, the insurance drops after 11 years. This is a real cost to factor into whether FHA makes sense for you versus saving for a larger down payment.

Employment and income documentation

Lenders need to see two years of employment history, but this doesn't mean you must have worked at the same job for two years. You can change employers as long as you stayed in the same field or career path. If you switched from one accounting firm to another, that's fine. If you went from construction to retail, you'll need to explain why the change makes sense and why your new income is stable.

Self-employed borrowers face stricter rules. You typically need two years of tax returns showing consistent or growing income. If you're in your first year of self-employment, most lenders will not approve you. Freelancers and gig workers can sometimes document income through bank statements and 1099 forms, but requirements vary by lender.

Income includes your base salary, bonuses, commissions, and overtime — but only if you've received it for at least two years and your lender believes it will continue. Rental income, Social Security, disability payments, and child support all count, though you may need to provide documentation like leases, award letters, or court orders. Lenders typically average variable income over two years to smooth out ups and downs.

Assets and reserves

FHA does not require you to have savings or assets beyond the down payment, but having them helps. If you have cash reserves equal to two months of mortgage payments after closing, lenders view you as lower risk and may approve you with a lower credit score or higher debt ratio.

Assets include savings accounts, checking accounts, retirement accounts (valued at 70 percent of the balance), stocks, bonds, and real estate you own. A car is not counted as an asset. If a family member is giving you the down payment as a gift, that's allowed, but the lender needs a signed letter from them stating it's a gift and not a loan you have to repay.

Credit history and past financial problems

A late payment on your credit report doesn't automatically disqualify you. What matters is the pattern and how long ago it happened. One 30-day late payment from three years ago is far less concerning than multiple late payments in the past year. Collections accounts, charge-offs, and judgments are worse, but FHA will still consider you if enough time has passed and your recent history is clean.

Foreclosure requires a three-year waiting period from the date the lender took back the property. Bankruptcy requires two years after a Chapter 7 discharge or three years after a Chapter 13 dismissal. These are hard rules, not guidelines — you cannot close before the waiting period ends. However, if you can show that the foreclosure or bankruptcy was caused by a one-time event like job loss or medical emergency, and your finances have been stable since, some lenders will work with you.

Collections accounts that have been paid off look better than unpaid ones, but both will be on your credit report. If you have an unpaid collection, paying it before applying for the mortgage will improve your chances, though it may temporarily lower your credit score as the account activity updates.

Property and appraisal requirements

The home itself must meet FHA standards. An FHA appraiser will inspect it and check that it's safe, sound, and sanitary. Major issues like a roof with less than two years of life remaining, foundation cracks, or significant mold will cause the appraisal to fail. The property must have working utilities, no lead paint hazards (for homes built before 1978), and no pest damage.

The appraisal also confirms the home's value. If the appraised value is lower than the purchase price, you have a problem — the lender will only finance up to the appraised value, so you'd need to pay the difference in cash or renegotiate the price. This is one reason to get pre-approved before making an offer; you'll know roughly what price range the lender will support.

FHA loans can be used for single-family homes, townhouses, condos, and multi-unit properties (up to four units if you live in one). The property must be your primary residence — FHA does not finance investment properties or second homes.

Debt-to-income ratio in detail

Your debt-to-income ratio is the single most common reason for denial or conditional approval. Lenders calculate it by adding all your monthly debt payments and dividing by your gross monthly income before taxes. The FHA limit is 43 percent, though some lenders will go to 50 percent if you have strong compensating factors like a large down payment, excellent credit, or substantial savings.

Monthly debt includes car payments, student loans, credit card minimums, personal loans, alimony, child support, and the new mortgage payment (including property taxes, insurance, and mortgage insurance). It does not include utilities, groceries, phone bills, or insurance premiums that aren't part of the mortgage.

If your ratio is too high, you have a few options: increase your income (through a co-borrower or documented raise), pay down existing debt before applying, or look at a lower-priced home with a smaller mortgage payment. Paying off a car loan or credit card before closing can make a real difference.

Co-borrowers and gift funds

If your income alone doesn't support the loan, you can add a co-borrower — typically a spouse, parent, or adult child. The co-borrower's income counts toward the total, and their debts count too. Both of you must meet the credit and employment requirements. A co-borrower is different from a co-signer; a co-borrower is on the deed and the mortgage, while a co-signer is only on the mortgage and has no ownership stake.

Down payment gifts are allowed from family members, employers, nonprofits, or government programs. The lender needs a signed gift letter stating the amount, the relationship between you and the giver, and that it's a gift with no repayment expected. Some lenders require the gift to come from the giver's account to yours before closing, so plan ahead if you're receiving a gift.

Frequently Asked Questions

Can I get an FHA loan if I have a recent late payment?

Yes. A single late payment from six months ago is not disqualifying, especially if your other payments are on time. Multiple recent late payments or a pattern of missed payments will hurt your chances. Lenders look at the full picture — one mistake is recoverable, but a pattern suggests ongoing risk.

What if my debt-to-income ratio is too high?

Pay down existing debt before applying, or add a co-borrower whose income helps lower the ratio. You can also look at a less expensive home. Some lenders will stretch to 50 percent if you have strong compensating factors, but 43 percent is the standard FHA limit.

Do I need to have worked at my current job for two full years?

No. You need two years of employment history, but you can change jobs as long as you stayed in the same career field. If you switched careers, be ready to explain why and show that your new income is stable. Self-employed borrowers typically need two years of tax returns showing consistent income.

Can I use a gift for my down payment?

Yes. The gift must come from a family member or approved organization, and the lender needs a signed letter from the giver stating it's a gift, not a loan. The gift funds should transfer to your account before closing so the lender can document where they came from.

What happens if the home appraisal comes in low?

The lender will only finance up to the appraised value. You can renegotiate the purchase price with the seller, pay the difference in cash, or walk away. This is why getting pre-approved before making an offer helps — you'll know what price the lender will support.