FHA Loan Requirements: Credit, Down Payment, and Eligibility

To qualify for an FHA loan, you need a credit score of at least 500, a down payment between 3.5% and 10% depending on that score, a two-year employment history with verifiable income, debt ratios that generally stay within 31% for housing and 43% overall, U.S. citizenship or lawful permanent residence, and a primary-residence property that meets HUD’s minimum standards. FHA loan requirements are set by the Federal Housing Administration, which insures the mortgage rather than lending the money; the loan itself comes from an FHA-approved private lender who may add stricter overlays on top of the federal minimums.¹

Credit Score and Down Payment

Your credit score sets your down payment. A score of 580 or higher qualifies you for the maximum 96.5% financing, so you put down 3.5%. A score between 500 and 579 caps financing at 90%, meaning 10% down. Below 500, you’re ineligible for FHA financing at all.²

The score lenders use isn’t necessarily the one on your free credit app. FHA pulls scores from three bureaus and uses the middle one; if only two bureaus return a score, the lender uses the lower of the two. These are federal minimums. Individual lenders commonly set their own floors at 580 or 620 because they still carry some risk even with FHA insurance behind them.

Credit History Issues

Lenders look past the number. A Chapter 7 bankruptcy has to be discharged for at least two years before you’re eligible.³ After a foreclosure, the standard waiting period is three years with evidence of rebuilt credit habits. If the foreclosure was tied to a documented hardship beyond your control, such as a job loss or a serious medical event, HUD’s back-to-work guidelines can shorten the wait to as little as 12 months.⁴ Recent late payments can hurt your file even when your score clears the threshold.

No Credit Score

If you’ve never used traditional credit, you aren’t automatically out. FHA lets lenders build a non-traditional credit history from records of rent, utilities, insurance premiums, and similar recurring bills.⁵ You’ll need at least 12 months of on-time payments across those accounts, and the file goes through manual underwriting rather than the automated system, which is slower and more document-heavy.

Income and Employment

Lenders want to see stable income that can support the payment over the long haul. The baseline is a two-year employment history showing consistent earnings.⁶ That doesn’t mean the same job for two years. It means steady employment, ideally in the same line of work.

Self-employed borrowers face heavier documentation. You’ll usually need two years of personal federal tax returns plus two years of business returns. The lender may waive the business returns if your personal returns show increasing self-employment income over two years, your down payment isn’t coming from business accounts, and the loan isn’t a cash-out refinance.⁶

Not all earnings count equally. FHA uses a concept called Effective Income to decide what qualifies. Overtime, bonuses, and tips can be included if you’ve received them for two years and they’re likely to continue. Commission income qualifies with as little as one year in the same or similar field. Seasonal and part-time work counts too, provided you’ve maintained it without significant gaps. Employment gaps of six months or longer don’t disqualify you outright, but you’ll need to be back in the same line of work for at least six months at the time your loan application is processed, and still document a two-year work history before the gap.⁶

Debt-to-Income Ratios

FHA measures affordability with two ratios:

Front-end ratio, capped at 31%. Your total monthly housing payment (principal, interest, taxes, insurance, and mortgage insurance) should not exceed 31% of gross monthly income.
Back-end ratio, capped at 43%. Your housing payment plus all other recurring debts (car loans, student loans, credit card minimums, child support) should not exceed 43% of gross monthly income.

Those are the benchmarks for manual underwriting. In practice, most FHA files run through the automated system called the TOTAL Mortgage Scorecard, which can approve borrowers above those thresholds without documented compensating factors.⁷ The exact ceiling depends on the strength of the overall file: credit score, cash reserves, and residual income all factor in. If your file is manually underwritten and your ratios run high, you’ll need to show compensating factors like significant reserves, minimal payment increase over your current housing costs, or additional qualifying income.

Borrower Eligibility

FHA loans are available only to U.S. citizens and lawful permanent residents. HUD eliminated eligibility for non-permanent residents effective for case numbers assigned on or after May 25, 2025.⁸ Non-citizens with work authorization who once qualified under earlier rules no longer do.

The property has to be your primary residence, and you’re expected to move in within 60 days of closing. FHA loans can’t be used for investment properties or vacation homes. Occupancy fraud is something HUD actively investigates.

The CAIVRS Check

Every applicant is screened through the Credit Alert Verification Reporting System, a federal database that flags delinquent government debts. A current default on a federal student loan, an SBA loan, or a prior government-insured mortgage stops the application. You’ll need to resolve those debts before reapplying.⁹

Non-Occupant Co-Borrowers

A family member who won’t live in the home can co-sign to strengthen the application, and you still qualify for the standard 96.5% maximum financing. If the non-occupant co-borrower is not a family member, the maximum loan-to-value drops to 75%, meaning 25% down.² The co-borrower’s income and debts both count toward qualification, and they must be a U.S. citizen or have their principal residence in the United States.

Loan Limits

FHA caps how much it will insure, and the cap depends on the county. For 2026, single-family limits run from a floor of $541,287 in most U.S. counties to a ceiling of $1,249,125 in the highest-cost areas.¹⁰ Most counties sit at or near the floor. Expensive metros run higher up to the ceiling. Check your county’s specific number on HUD’s website before you shop.

Down Payment Sources

The down payment doesn’t have to come entirely from your own savings. FHA allows gift funds from a defined set of donors: family members, your employer or labor union, a close friend with a documented relationship, a charitable organization, or a government agency with a homeownership assistance program. The gift cannot come from anyone with a financial interest in the sale (the seller, real estate agent, builder, or any entity connected to them). Money from those parties is treated as a sales concession, not a gift.¹¹

The paperwork is specific. You need a signed gift letter with the donor’s name and contact information, the dollar amount, the relationship, and an explicit statement that no repayment is expected. The lender also needs a paper trail of the money moving from the donor’s account to yours: bank statements, withdrawal records, wire confirmations, or copies of certified checks.¹¹ A donor can borrow the gift money, but you cannot be an obligor on that loan. Cash on hand is not accepted as a source.

Seller Concessions

Sellers and other interested parties can contribute up to 6% of the sales price toward your closing costs, prepaid items, discount points, and even your upfront mortgage insurance premium.¹² That 6% is generous compared to conventional loans. The concession can’t exceed your actual closing costs; sellers can’t hand you cash back at the table.

Property Standards

FHA approves the property as well as the borrower. An FHA-certified appraiser inspects the home to confirm it meets HUD’s Minimum Property Requirements for safety, structural soundness, and basic livability. This review is more involved than a conventional appraisal, and homes that would pass a standard inspection sometimes hit snags.

The property must be free of health and safety hazards, including environmental contamination, inadequate drainage, and flood risk. Homes built before 1978 get inspected for chipping, peeling, or flaking paint because of lead-based paint concerns.¹³ The foundation must support the structure for the life of the mortgage. Heating, electrical, and plumbing systems must be safe and functional. Every unit needs potable water and proper sewage disposal, whether from public systems or from a private well and septic that meet local health codes.¹⁴

The roof must have at least two years of remaining useful life.¹⁵ The home needs safe vehicular and pedestrian access from a public or private street, with all-weather access for emergency vehicles. Crawl spaces need at least 18 inches of clearance, adequate ventilation, and no standing water.¹³ If the appraiser flags a deficiency, the seller typically has to make repairs before closing, or the deal has to be restructured with a repair escrow.

Mortgage Insurance Is Required

Every FHA loan carries mortgage insurance. It’s the mechanism that makes the program work, and it’s a cost you should factor in before you decide FHA is the right route.

The upfront premium is 1.75% of the base loan amount, paid at closing. On a $300,000 loan that’s $5,250. Most borrowers finance it into the loan rather than paying cash. On top of that, an annual premium is charged monthly. For the common 30-year loan at or below $625,500 with a 3.5% down payment, the annual rate is 0.85% of the outstanding balance. Put down at least 5% and the rate drops to 0.80%. Larger loans above $625,500 run 1.00% to 1.05%.¹⁶

How long you pay depends on your starting loan-to-value. For loans with case numbers assigned on or after June 3, 2013, an initial LTV of 90% or less means the annual premium drops off after 11 years; an initial LTV above 90% means the premium stays for the entire loan term.¹⁷ Since most FHA borrowers put down 3.5% and start at 96.5% LTV, they’re locked into MIP for the life of a 30-year loan. The only way out early is to refinance into a conventional loan once you’ve built enough equity, a calculation worth running once your balance drops to roughly 80% of your home’s value.

Documents to Gather

Have these ready before you sit down with a lender:

Pay stubs covering the most recent 30 consecutive days with year-to-date earnings.
W-2 forms from the previous two years.
Federal tax returns for the last two years, with all schedules. Self-employed borrowers also need business returns unless the waiver conditions apply.
Bank statements covering at least one to two months, showing the source of your down payment and any reserves.

The lender also needs verification of your two-year employment history, either through a written Verification of Employment from your employer or through an approved electronic third-party vendor.¹⁸ Everything feeds into the Uniform Residential Loan Application (Form 1003), which the lender provides. Accuracy matters. Discrepancies uncovered during verification can delay or kill an approval, and large deposits beyond your regular paycheck need to be explained with documentation. Unexplained deposits are one of the most common reasons files stall in underwriting.

1
U.S. Department of Housing and Urban Development. Federal Housing Administration History
2
U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
3
U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage
4
U.S. Department of Housing and Urban Development. Mortgagee Letter 2013-26
5
U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
6
U.S. Department of Housing and Urban Development. Mortgagee Letter 2022-09 – Calculating Effective Income
7
U.S. Department of Housing and Urban Development. 4155.1 Mortgage Credit Analysis for Mortgage Insurance – Section F Borrower Qualifying Ratios
8
U.S. Department of Housing and Urban Development. Mortgagee Letter 2025-09 – Revisions to Residency Requirements
9
U.S. Department of Housing and Urban Development. HOC Reference Guide – CAIVRS Credit Alert Verification and Reporting System
10
U.S. Department of Housing and Urban Development. HUDs Federal Housing Administration Announces 2026 Loan Limits
11
U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4155.1 – Gift Funds
12
U.S. Department of Housing and Urban Development. What Costs Can a Seller or Other Interested Party Pay on Behalf of the Borrower
13
U.S. Department of Housing and Urban Development. Valuation Analysis for Single Family One-to-Four Unit Dwellings – Handbook 4150.2
14
U.S. Department of Housing and Urban Development. Rescission of Outdated and Costly FHA Appraisal Protocols
15
U.S. Department of Housing and Urban Development. HOC Reference Guide – Roofs and Attics
16
U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-01 Appendix 1.0 – Mortgage Insurance Premiums
17
U.S. Department of Housing and Urban Development. Mortgagee Letter 2013-04
18
U.S. Department of Housing and Urban Development. Mortgagee Letter 2019-01