What You Actually Need to Get an FHA Loan

The core requirements: income, credit, and a down payment

An FHA loan requires three things: a credit score of at least 580 (though some lenders want 620), a down payment of 3.5 percent, and a debt-to-income ratio below 43 percent. That ratio means your monthly debts — car loans, credit cards, student loans, and the new mortgage payment — cannot exceed 43 percent of your gross monthly income. If you make $5,000 a month before taxes, your total debts can be no more than $2,150.

You also need a job history showing you have worked for the same employer for at least two years, or you work in the same field even if you switched companies. The lender will verify this with your employer and pull your last two years of tax returns. If you are self-employed, expect to provide two years of business tax returns and possibly a profit-and-loss statement.

The property itself has to meet FHA standards — it cannot have major structural damage, a leaking roof, or hazardous materials. The lender orders an appraisal, and the appraiser checks these things. If the house fails inspection, you either walk away or negotiate repairs with the seller before closing.

Key Takeaways

• You need a credit score of at least 580, a 3.5 percent down payment, and a debt-to-income ratio under 43 percent to meet the baseline FHA requirements.
• Your lender will verify two years of employment history and pull tax returns to confirm your income is stable and real.
• The property must pass an FHA appraisal, which checks for structural damage, roof condition, and hazardous materials — not cosmetic issues.
• Mortgage insurance is mandatory for all FHA loans and costs between 0.55 and 1.55 percent of the loan amount annually, depending on your down payment and loan term.
• You can have past credit problems — late payments, collections, or even a foreclosure — as long as you waited the required time and can explain what happened.

How credit score and credit history work together

A 580 credit score is the minimum, but lenders often require 620 or higher in practice. Your score matters, but your history matters more. A lender will look at what caused any damage: a missed payment during a job loss looks different from a pattern of missed payments. If you had a foreclosure, you typically need to wait three years from the date the lender took the property back. A bankruptcy requires a two-year wait from discharge.

Recent late payments hurt more than old ones. A 30-day late payment from six months ago is a bigger problem than one from three years ago. If you have collection accounts, the lender wants to know whether you paid them off or settled them. Paying off an old collection before you apply improves your chances, though it may temporarily lower your score.

You do not need perfect credit. Many people with FHA loans have had credit problems. What lenders want to see is that you have recovered and that whatever happened is behind you.

Down payment and closing costs

The minimum down payment is 3.5 percent of the purchase price. On a $250,000 house, that is $8,750. You also pay closing costs — typically 2 to 5 percent of the loan amount — which cover the appraisal, title search, attorney fees, and lender fees. On that same $250,000 house, closing costs might run $5,000 to $12,500.

You can ask the seller to cover some or all of your closing costs as part of the negotiation. FHA rules allow sellers to pay up to 6 percent of the purchase price toward your costs. If the seller pays $15,000 of your closing costs on a $250,000 purchase, that is within the limit. This is common in a buyer's market and worth asking for.

Some lenders offer down payment assistance programs or grants through nonprofits, though these vary by state and location. Your lender can tell you what is available in your area, but do not count on finding assistance programs — these programs fill up quickly and have their own requirements.

Mortgage insurance and what it costs

Every FHA loan carries mortgage insurance, which protects the lender if you stop paying. This is not optional. You pay an upfront mortgage insurance premium (UFMIP) of 1.75 percent of the loan amount at closing, and then an annual premium that runs between 0.55 and 1.55 percent of the loan amount each year, depending on your down payment and the length of your loan.

If you put down 10 percent or more, you pay the annual premium for 11 years. If you put down less than 10 percent (most FHA borrowers do), you pay it for the life of the loan. On a $240,000 loan with a 3.5 percent down payment, the annual insurance might be around $200 to $300 per month, rolled into your mortgage payment. This is a real cost that does not build equity — it is pure insurance.

You cannot remove mortgage insurance by refinancing into a conventional loan unless you have built enough equity and your credit has improved enough to may have access to. Many people do this after a few years, which can save money if rates are favorable.

Debt-to-income ratio and what counts as debt

Your debt-to-income ratio is calculated by adding up all your monthly debt payments and dividing by your gross monthly income. The FHA limit is 43 percent, though some lenders will go to 50 percent if you have strong compensating factors — a large savings account, a low credit card balance, or a long employment history.

Debt includes car loans, student loans, credit card minimums, child support, alimony, and any other loan payment. It also includes the new mortgage payment itself — principal, interest, taxes, insurance, and mortgage insurance all count. It does not include utilities, groceries, or insurance premiums that are not part of the mortgage.

If your debt-to-income ratio is too high, you have two paths: increase your income or decrease your debt. Paying off a car loan or credit card before you apply can lower your ratio enough to may have access to. Waiting for a raise or bonus to close might work too, though you have to document the income increase with your employer.

Employment and income verification

Your lender will contact your current employer to verify that you work there and have worked there for at least two years. If you changed jobs in the last two years but stayed in the same field, that is usually fine — you need two years in the same line of work, not necessarily with the same company. If you switched careers, the lender may require additional explanation or may want to see longer employment history in the new field.

Self-employed borrowers need two years of business tax returns and sometimes a profit-and-loss statement from an accountant. If your business is new or your income has dropped significantly, the lender may average your income over two years or ask for a letter from your accountant explaining the change.

Bonus income, commission, or overtime can count toward your income if you have received it for at least two years. The lender will average it over that period. If you just started receiving overtime or commission, it does not count yet.

Property requirements and the appraisal

The FHA does not finance properties with major structural problems, hazardous materials, or safety issues. The appraiser checks for a sound roof, no water damage, working plumbing and electrical systems, and no lead paint hazards (in homes built before 1978). Cosmetic issues — outdated kitchen, worn carpet, peeling paint — do not matter.

If the appraisal finds problems, the seller can agree to fix them before closing, or you can walk away. Some sellers will negotiate a price reduction instead of making repairs. The lender will not fund the loan until the issues are resolved or the price is adjusted to account for them.

The appraisal also determines the property value, which affects your loan amount. If the house appraises for less than the purchase price, you either pay the difference out of pocket or renegotiate the price with the seller.

Frequently Asked Questions

Can I get an FHA loan if I have had a foreclosure or bankruptcy?

Yes. You need to wait three years from a foreclosure or two years from a bankruptcy discharge. After that waiting period, you can may have access to if your credit has recovered and you can explain what caused the problem. The lender will want to see that you have rebuilt credit and stabilized your finances since then.

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

Pay down credit cards or car loans before you apply to lower your ratio. Even paying off one card can make the difference. If that is not possible, wait for a documented income increase — a raise, promotion, or bonus — and reapply. Some lenders will stretch to 50 percent if you have strong compensating factors like a large savings account.

Do I have to use an FHA-approved lender?

Yes. Only lenders approved by the FHA can make FHA loans. Most banks, credit unions, and mortgage companies are approved. Your real estate agent or a mortgage broker can point you to lenders in your area. Shop around — rates and fees vary.

What happens if the house fails the FHA appraisal?

The seller can make repairs, offer a price reduction, or you can walk away. The lender will not fund the loan until the issues are fixed or the price reflects the problems. You are not obligated to buy a house that does not meet FHA standards.

Can I remove mortgage insurance later?

Only if you put down 10 percent or more and refinance into a conventional loan after building equity and improving your credit. If you put down less than 10 percent, you pay mortgage insurance for the life of the loan unless you refinance. Refinancing makes sense if rates drop or your credit improves significantly.