Am I eligible for an FHA Loan? A complete checklist
The Federal Housing Administration (FHA) loan program is a popular option for first-time homebuyers, those with lower credit scores and those with less down payment savings. Before applying, it’s crucial to assess whether you meet the eligibility requirements. This guide provides a comprehensive FHA loan eligibility checklist so you can prepare for the process and move forward without surprises.
FHA loan eligibility checklist
Minimum credit score and down payment
- Standard requirement: 580 for 3.5% down payment
- 540 – 579: Possible with 10% down, but you may face additional fees or requirements
- Funds can come from personal savings, a gift or a down payment assistance program.
Stable employment history
- Typically, two years of consistent employment is required.
- Lenders look for steady income and job reliability. It may not be the best time to change jobs if you’re waiting for loan approval.
Legal residency and age
- Be a U.S. citizen or lawful resident
- Be at least 18 years old
Valid Social Security number
- A valid SSN is required to process and verify borrower information.
Debt-to-income (DTI) ratio
- Recommended: 43% or less
- Some lenders may allow up to 50% with strong compensating factors (e.g., higher credit, savings, etc.).
Primary residence requirement
- FHA loans are only for primary residences, not second homes or investment properties.
- You must occupy the home within 60 days of closing.
Property requirements
- The property must be in livable condition, meet safety standards and pass an FHA-approved appraisal.
Mortgage Insurance Premium (MIP)
- You must pay MIP upfront and monthly for the life of the loan (unless you refinance).
No recent foreclosures or bankruptcies
- Any Chapter 7 bankruptcies must have been discharged at least two years ago.
- Foreclosures must be at least three years old.
- Extenuating circumstances (like medical emergencies) may shorten these timelines.
FHA loan vs. Conventional loan: key differences
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum credit score | 580 (or 540 at Guild with 10% down) | Typically 620+ |
| Down payment | As low as 3.5% | As low as 3% |
| Mortgage insurance | Required for life of the loan | Required if <20% down |
| Flexibility | More lenient on credit and income | Stricter qualification standards |
Conclusion
FHA loans can open the door to homeownership for many people, especially first-time buyers and those with limited savings. If you meet most of the criteria listed above, you have a fair shot at getting approved. However, it’s always best to consult a lender near you who specializes in FHA loans to review your full financial picture and receive pre-approval.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.