The core requirements an FHA lender will check

An FHA loan requires four things before a lender will approve it: a credit score of at least 580 (though some lenders set it higher), a debt-to-income ratio below 43 percent, a down payment of 3.5 percent of the home price, and proof that you have steady income. The lender also orders an appraisal to confirm the house is worth what you are paying, and a title search to confirm the seller actually owns it. None of these are negotiable — if you fall short on any one, the loan will not close.

The income requirement is not about earning a certain amount. It is about showing you have received regular paychecks (or self-employment income, or retirement income, or benefits) for at least two years, with no long gaps. If you changed jobs, the lender will want to see that your new job is in the same field and pays roughly the same. If you were out of work, you will need to explain what happened and show that you are back on steady ground now.

Key Takeaways

  • Your credit score must be at least 580, though many lenders require 620 or higher, and the score affects how much interest you pay.
  • Your monthly debt payments (including the new mortgage) cannot exceed 43 percent of your gross monthly income, and lenders calculate this strictly.
  • You must put down 3.5 percent of the purchase price as a down payment, and you cannot borrow this money — it must come from your own savings or a gift from a relative.
  • You need two years of steady income history, whether from employment, self-employment, retirement, or government benefits, with no unexplained gaps longer than 30 days.
  • The house must pass an FHA appraisal, which checks that it meets safety and livability standards and is worth the price you agreed to pay.

Credit score and what lenders actually look for

The minimum credit score for an FHA loan is 580. Below that, you will not get approved. If your score is between 580 and 619, most lenders will approve you, but you will pay a higher interest rate and a higher mortgage insurance premium. If your score is 620 or above, you get better rates and lower insurance costs.

Lenders do not just look at the number. They also pull your full credit report and look for recent late payments, collections, charge-offs, or foreclosures. A late payment from five years ago matters less than one from last month. If you had a foreclosure or bankruptcy, you generally need to wait three years after the discharge before an FHA lender will consider you. A short sale requires a two-year wait.

If you have no credit history at all — no credit cards, no loans, no payment records — some lenders will work with you using alternative credit, such as utility bills, rent payments, or insurance payments that show you pay on time. You will need to ask the lender whether they accept this.

Debt-to-income ratio and how it is calculated

Debt-to-income ratio (or DTI) is the percentage of your gross monthly income that goes to debt payments. The FHA limit is 43 percent. To calculate it, the lender adds up all your monthly debt: car loans, student loans, credit card minimums, child support, alimony, and the new mortgage payment. Then they divide that total by your gross monthly income (before taxes) and multiply by 100.

Example: If you earn $4,000 gross per month and your total monthly debts are $1,500, your DTI is 37.5 percent. You are under the 43 percent limit, so you pass. If your debts are $1,800, your DTI is 45 percent, and you fail — the lender will not approve the loan unless you pay down debt or earn more.

The mortgage payment itself includes principal, interest, property taxes, homeowners insurance, and the FHA mortgage insurance premium. The lender calculates what your payment will be based on the loan amount, interest rate, and property taxes in your area. This is why getting pre-approved matters: you learn exactly how much house you can afford before you start looking.

Down payment rules and where the money comes from

FHA loans require a 3.5 percent down payment. On a $200,000 house, that is $7,000. This money must come from your own savings, a gift from a family member, or a grant from a nonprofit or government program. You cannot borrow it from anyone — not from a friend, not from a credit card, not from a personal loan. The lender will ask where the down payment came from, and if they suspect you borrowed it, they will deny the loan.

If a family member gives you the money, they must sign a gift letter stating that it is a gift and not a loan you have to repay. The lender will ask to see the gift letter and proof that the money was actually transferred to you (usually a bank statement showing the deposit).

Some states and cities offer down payment assistance programs that give grants or low-interest loans to first-time homebuyers. These vary widely by location. Your lender can tell you whether any programs apply to you, or you can contact your local housing authority or a nonprofit housing counselor to ask.

Income documentation and what counts as proof

The lender will ask for recent pay stubs (usually the last two months), W-2 forms from the past two years, and a written offer letter from your current employer confirming your job and salary. If you are self-employed, the process is more involved: you will need to provide two years of tax returns, profit-and-loss statements, and sometimes bank statements showing business deposits.

If you receive Social Security, disability benefits, unemployment, or other government income, bring the award letter from the agency that shows the monthly amount and the date it started. If you receive alimony or child support, bring the divorce decree or court order and proof that you have received it for at least three months (usually bank statements or cancelled checks).

If you changed jobs within the past two years, the lender will want to see that your new job is in the same field and pays the same or more. A career change to a lower-paying job can disqualify you. If you were unemployed for more than 30 days, you will need to write a letter explaining what happened and why you are confident it will not happen again.

The appraisal and what happens if the house does not meet standards

The lender orders an independent appraisal to confirm two things: that the house is worth at least what you are paying for it, and that it meets FHA minimum property standards. The appraiser inspects the roof, foundation, plumbing, electrical, heating, and safety features. The house must be safe and livable — no major structural damage, no mold, no lead paint hazards (in homes built before 1978), and no code violations.

If the appraisal comes back lower than the purchase price, you have options: renegotiate the price with the seller, put down more money to make up the difference, or walk away. If the house fails the safety inspection, the seller must fix the problems before closing, or you can cancel the deal.

The appraisal usually takes one to two weeks. During this time, do not make large purchases or take on new debt — the lender may pull your credit again before closing, and new accounts or higher balances can cause problems.

Title search and proof of ownership

The lender orders a title search through a title company to confirm that the seller owns the house free and clear (or that any existing liens will be paid off at closing). The search also checks for unpaid property taxes, code violations, or other claims against the property. If problems are found, they must be resolved before closing.

You will also be offered title insurance, which protects you if someone later claims they have a legal right to the house. This is optional but strongly recommended. The cost is usually a one-time premium paid at closing, typically $500 to $1,500 depending on the house price.

Frequently Asked Questions

What if my credit score is below 580?

You cannot get an FHA loan with a score below 580. Your options are to work on raising your score (paying down debt, correcting errors on your credit report, or waiting for old negative marks to age) or to look into other loan programs that accept lower scores, though they usually charge higher interest rates.

Can I use a co-signer if my income is too low?

Yes. A co-signer's income counts toward yours for the debt-to-income calculation. The co-signer must have good credit and be willing to be legally responsible for the loan if you do not pay. The co-signer's own debts also count in the calculation, so this only helps if they have strong income and low existing debt.

What if I do not have two years of work history?

Most lenders require two years of steady income. If you have less, ask whether the lender will accept a letter from your employer stating that you are permanent staff and are expected to stay. Some lenders will work with you if you have at least one year of history and a strong reason for the gap (such as school or military service).

Do I have to buy homeowners insurance before closing?

Yes. The lender will not close the loan without proof that you have homeowners insurance in place. You typically purchase this a few days before closing. The cost varies by location and the house value, but budget $800 to $1,500 per year.

What is the FHA mortgage insurance premium and why do I have to pay it?

FHA mortgage insurance protects the lender if you stop paying. There is an upfront premium (usually 1.75 percent of the loan amount, paid at closing) and an annual premium (usually 0.55 percent of the loan balance per year, paid as part of your monthly payment). You pay this for the life of the loan if you put down less than 10 percent.