FHA loan requirements for 2024

FHA lenders approve applications from borrowers who might not qualify for conventional financing. The tradeoff is that borrowers must pay a mortgage insurance premium (MIP). In some cases, they pay it for the entire term of the loan. 

Despite this requirement, many first-time homebuyers turn to FHA loans, especially in the current housing market. According to the FHA’s annual report, over 732,000 FHA loans were issued last year and 82.21% of those went to first-time homebuyers.

FHA loan requirements in 2024: How to qualify

The FHA sets eligibility criteria for the loans it insures so that borrowers can afford their loans without overly restrictive qualifications. 

In 2024, you’ll need to meet the following FHA requirements to qualify for a loan:

FHA minimum credit score

The minimum credit score for an FHA loan is 500, but borrowers can only be approved with that score if they make a down payment of at least 10%. Borrowers with smaller down payments need a credit score of at least 580.

While a 580 score can pose a challenge to some borrowers, it’s significantly more lenient than the 620 score most conventional loans require.

FHA minimum down payment

You can buy a home with as little as 3.5% down when you use an FHA loan to finance the purchase, as long as your credit score is 580 or higher. If your credit score is 500 to 579, the minimum down payment amount increases to 10%.

Most buyers think of their down payment as the percentage of the purchase price they pay in cash, but the FHA lenders think of it in terms of what percentage you’re borrowing. That percentage is called the loan-to-value ratio (LTV).

FHA debt-to-income ratio (DTI)

The maximum DTI for an FHA loan is 43% unless the borrower has “acceptable compensating factors,” in which case you can be approved with up to a 47% DTI.

Compensating factors are conditions that show the FHA you can afford to take on additional debt. They include:

• Cash reserves equal to three monthly mortgage payments 
• Additional income beyond your salary, such as regular bonuses or predictable income from a side gig
• The potential for increased income, such as enrollment in job training

Remember: DTI isn’t just the ratio of your mortgage payment to your income; it’s the ratio of your total debt payments to income.

Homeowners insurance and property tax are also included in the DTI calculation. Although they’re technically not debt, the FHA includes them because they’re mandatory expenses that protect the FHA’s investment in your home.

To figure out how large a mortgage payment you can afford, just multiply 0.45 (45%) by your monthly income.

Here’s what that looks like for $4,000 per month in income:    

0.45 x $4,000 = $1,800 

For this example, subtract your monthly credit card and loan payment amounts from $1,800 to see how large a mortgage payment you could qualify for. 

FHA income requirements

There is no minimum income amount required to qualify for an FHA mortgage loan, but the FHA does have rules about the kind of income it’ll consider.

The first rule is that the income must be “legally derived,” and you must have reported it on your income tax return. That’s usually not an issue, but it can be if you earn income from self-employment that you’ve not reported. 

Say, for example, you earn $50,000 per year in salary from your W-2 job, and you earn another $10,000 a year doing odd jobs as an independent contractor. You’ll put on your mortgage application that your income is $60,000 per year.

When you submit your tax returns and other documents, the lender will check to make sure that you’ve reported and paid tax on $60,000. If only your $50,000 in employee income appears on the tax return, $10,000 will be subtracted, and the lender will use $50,000 as your income when it calculates your DTI.

FHA documentation 

As you can tell from the income requirements, the FHA and the mortgage lender will need to verify your income, and they’ll also verify your identity. They do this by reviewing documents you submit with your mortgage application.

The documents include:

• Driver’s license or other official ID
• Social Security number
• Your most recent pay stub
• Verification of Employment form covering two years, or two years’ worth of W-2 forms
• If self-employed, most recent two years’ tax returns
• Benefit statements for disability or Social Security

You might have to submit additional documentation if you have other sources of income, such as from investments or a rental property.

How to get an FHA loan

You can apply for an FHA loan from any FHA-approved lender. Most consumer mortgage lenders offer the loans, but you might want to check with your preferred lender to make sure it does.

1. Get a pre-approval

Consider asking for a pre-approval from the lender when you’re ready to start looking at homes. That way, you’ll have a better sense of whether you’re likely to be approved, and if so, how much you’ll qualify for. 

2. Determine if home qualifies for FHA financing

As you tour homes, keep in mind that the FHA has guidelines for the homes it accepts for FHA backing. 

First, it has to meet HUD standards for safety and habitability — a fixer-upper probably won’t qualify. Your lender will order an FHA appraisal to evaluate the home’s condition while your application is being processed, and the seller will have a chance to resolve any issues. 

Note that while the FHA appraisal might seem similar to a home inspection, it serves a different purpose and doesn’t replace an inspection by a licensed home inspector. While a traditional home inspection is used to assess the condition of the home and report any issues, an FHA appraisal also determines the fair market value of the property and ensures it meets FHA standards. 

The next rule specifies loan limits based on how expensive a particular market is and how many living units the home has. HUD announced 2024 FHA loan limits last November. The “floor” for a single-family home in a low-cost area is $498,257. The “ceiling” for a single-family home in a high-cost area is $1,149,825. Very high-cost areas such as Alaska, Hawaii, Guam, and the U.S. Virgin Islands have their own ceiling, which is $1,724,725.

3. Apply for your loan

If you believe the home you want will fall within these guidelines, you can apply for your FHA mortgage loan right after the seller accepts your offer. 

Here are the steps:

• Gather your identity and income verification documents, including:
  • Contact information for all the employers you’ve had over the last two years
  • W-2 and 1099 forms from the last two years
  • Most recent pay stub
  • Benefits statements for disability, Social Security or other benefits
  • Two most recent tax returns, including Schedule Cs, if you’re self-employed
  • Bank and investment account statements for the last three months
• Decide whether to apply online, over the phone, or in person, if you’re using a local brick-and-mortar lender.
  • If you’re applying by phone, call the lender and let them know you’d like to apply. 
  • To apply in person, call to make an appointment.
  • If you’re applying online, you can go to the lender’s website to begin your application whenever you’re ready.
• Promptly submit any additional information or documentation your lender requests.

After your loan has been approved, you’ll receive a loan estimate from the lender. 

FHA loan requirements FAQ

Are FHA loans only for first-time buyers?

While FHA loans are popular with first-time homebuyers because they’re often easier to qualify for than conventional loans, and they allow buyers to purchase with low down payments, any qualified buyer can get an FHA loan.

How does the FHA mortgage insurance premium work?

FHA borrowers pay an upfront MIP of 1.75, which can be rolled into the loan. After that, the MIP for most borrowers is 0.55%, depending on the loan amount and the LTV. With an LTV of more than 90% (i.e., a down payment of less than 10%), the MIP lasts for the life of the loan.

Can I refinance an FHA loan to a conventional one?

Yes, it might be in your best interest to refinance, especially if your MIP is permanent. Switching to a conventional loan once you’ve built 20% equity eliminates your mortgage insurance premium and could get you a lower interest rate. These mortgage calculators from the Department of Defense Office of Financial Readiness can help you determine if refinancing will save you money.