If you’re thinking about buying a house, you may want to consider an FHA loan. These mortgages are backed by the Federal Housing Association (FHA) and are known for their low credit and minimum down payment requirements. In this article, we’ll take a closer look at the FHA loan requirements for 2024.
Minimum Credit Score
The minimum credit score required for an FHA loan depends on your down payment. If you can provide a down payment of 3.5% of the loan amount, the minimum credit score is 580. However, if you can offer a 10% down payment, you might qualify with a minimum credit score of 500.
Minimum Down Payment
The minimum down payment for an FHA loan is 3.5% if you have a credit score of at least 580. If your credit score is between 500 and 579, the minimum down payment is 10%. You can also use cash gifts from friends, family, or employers towards your down payment.
Debt-to-Income Ratio
Lenders will assess your debt-to-income ratio when you apply for an FHA loan. Typically, the maximum debt-to-income ratio for an FHA mortgage is 43%. However, in some cases, lenders might accept a ratio of up to 50% if you have excellent credit or a significant amount of cash in savings. The important thing is to ensure that you can comfortably afford your mortgage payments.
Loan Income Requirements
FHA loans do not have minimum income requirements, making them accessible to prospective homeowners with various income levels. Whether you are self-employed or working part-time or full-time, you can still qualify for an FHA loan. Ideally, you should have at least two years of solid, steady job history. Other eligible sources of income, such as child support and alimony, can also count towards satisfying the income requirements.
When applying for an FHA mortgage, you will typically need to provide documents such as paycheck stubs, W-2 or 1099 forms, tax returns from the last two years, and recent bank statements.
Loan Limits
While FHA loans do not have minimum income requirements and allow for a low down payment, they do have loan limits that vary each year. In 2024, the loan limit for a single-family home is $472,030 in most counties. However, in high-cost areas, the loan limit is increased to $1,089,300. Exceptional areas like Alaska, Guam, Hawaii, and the Virgin Islands have even higher loan limits.
Documentation Requirements
The exact documentation requirements for an FHA loan may vary depending on your specific situation. However, here is a list of documents and information that you will generally need to provide:
- Home address
- Social Security number
- Name and physical address of your employers from the past two years
- Current gross monthly salary
- Checking and savings account information
- Information and status of your loans
- Details on any other properties you own
- Value of your personal property
- Paycheck stubs and W-2 forms from the past two years
- Personal income tax returns
If you are self-employed, you will also need additional documents such as 1099-MISC and 1099-NEC forms, a current income statement, and a business balance sheet.
Inspection and Property Requirements
FHA mortgages do not require an inspection, but they do require an appraisal. An FHA-approved appraiser will assess the property to ensure it meets the FHA’s minimum property standards, which include safety, security, and soundness.
Mortgage Insurance Requirements
FHA loans do require mortgage insurance, which is usually required for the entire duration of the loan. There are two payments involved in mortgage insurance: an up-front premium and an annual payment. The up-front premium is 1.75% of the total loan amount, and the annual insurance payment depends on your loan-to-value ratio.
Foreclosure Waiting Period
If you have previously lost a home due to foreclosure, the FHA requires a waiting period of at least three years before you can apply for an FHA loan. In some cases, the waiting period may be shorter if there are extenuating circumstances, such as unexpected illness or the death of a primary income earner.
Homeownership Requirements
In 2024, FHA loans can only be used for single-family homes with a maximum of four units. Condos are also eligible as long as they are FHA-approved. Other property requirements include starting to reside in the home within 60 days of closing, using it as your primary residence, and ensuring it is free from toxins or hazards with adequate emergency vehicle access.
Frequently Asked Questions
What disqualifies a house from an FHA loan?
During the appraisal process, a house financed by an FHA loan must meet the minimum property standards for safety, security, and soundness.
How do you know if an FHA loan is right for you?
An FHA loan may be suitable if you have less-than-stellar credit, a higher debt-to-income ratio, plan to use gifted funds for the down payment, or intend to make a small down payment. It’s always wise to explore all your home financing options before making a decision.
How do you apply for an FHA loan?
Since the FHA does not issue home loans directly, you will need to apply through an FHA-backed mortgage lender. Before applying, ensure you meet the minimum requirements and gather all the necessary documents.
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