FHA loans are a popular choice among first time home buyers and repeat home buyers alike. This is partly because mortgages insured by the Federal Housing Administration have some of the best loan terms in the industry, including the impressively low down payment requirement of only 3.5%. FHA loans are also incredibly flexible when it comes to eligibility requirements, making them a perfect fit for almost anyone on the market for a new home.
Because of their popularity, it’s important for home buyers to stay up to date on any changes to the FHA’s loan eligibility requirements. To help you out, we’ve compiled the most up-to-date FHA loan eligibility criteria on this page. That way, you can stay ahead of the game and get the FHA financing you need!
2019 FHA Loan Eligibility Criteria
In order to qualify for an FHA loan in 2019, home buyers will need to meet the following requirements:
FICO credit score of at least 580 (3.5% down payment)
FICO credit score between 500 and 579 (10% down payment)
Debt-to-Income Ratio (DTI) of 46% (highest acceptable DTI is 50% but in rare cases only)
Mortgage insurance premium required
Must have an appraisal done by an FHA-approved appraiser
Must have proof of steady income
Required documentation includes W2s, pay stubs, and tax returns for no less than 2 years
Must have worked for the same company for at least 2 years
Must be at least 18 years of age
The home being purchased must be used as a primary residence
In addition to the information above, the FHA also allows non-occupying co-borrowers to apply for an FHA loan. However, they will also need to show proof of income and employment history in order to qualify.
2019 FHA Credit Score Requirement
In order to qualify for an FHA mortgage in 2019, borrowers should ideally have a credit score of at least 580. That doesn’t mean that borrowers with lower credit scores can’t qualify for the loan, however, that’s the credit score they’ll need in order to enjoy the FHA low down payment requirement of 3.5%.
If a borrower can make a down payment of at least 10%, then the acceptable credit score drops to 500. This allows many more potential home buyers the option of FHA-insured financing.
It’s important to remember that FHA credit requirements look at more than just your FICO credit score; they also scrutinize a borrower’s payment history, foreclosures, and bankruptcies in order to determine eligibility. They’ll also look at any extenuating circumstances that may have kept applicants from making timely payments in the past.
FHA Credit Issues
Since the FHA looks beyond the credit score and into a borrower's full financial situation, here are a few things potential borrowers should know:
Judgments, Collections, and Federal Debts - The FHA requires lenders to ensure that any judgments, collections, and debts are paid off before or at the closing of a borrower’s mortgage loan.
Bankruptcies - Bankruptcy is not a disqualifying factor for FHA loan eligibility.
In the case of Chapter 7 bankruptcy, a minimum of two years must have passed since filing, and the borrower should have no additional debt obligations or must have reestablished creditworthiness.
No Credit History - If a borrower has no credit history (especially if they are a first time home buyer), a lender will need to establish credit through other means or obtain a non-traditional merged credit report.
Foreclosure - Lenders are required to determine eligibility for borrowers with previous foreclosures on a case by case basis
Late Payments - It is highly recommended that borrowers establish a minimum of 12 months of on-time payments.
2019 FHA Credit Minimums
FHA-approved banks and lenders are not required to set credit score minimums for potential borrowers. As a matter of fact, the guidelines set by the FHA are just that: guidelines. Lenders are encouraged to set their own requirements (within reason) as well as a limit to the amount of FHA loans they are allowed to originate.
Because of this, lenders usually set tougher eligibility requirements for FHA financing in order to reduce the amount of FHA loans they sell. In fact, lenders are actually penalized by the FHA when borrowers default on FHA loans within a few years of the origination date, even when the FHA’s guidelines are followed exactly.
Down Payment Assistance Programs for 2019 FHA Loans
Down payment assistance programs are allowed with FHA financing and are intended to help borrowers who can’t save enough money to make a down payment on a home. Funding from down payment assistance programs usually comes as a non-payable grant, low-interest loan, or a forgivable loan.
In order for home buyers to qualify for down payment assistance programs, the home must be utilized as a primary residence. It must also be located in a specific county, city, or state as specified by the requirements of the program. Many down payment assistance programs also have limits regarding the purchase price of the home in question. Lastly, there are usually household income limits that serve as a factor for determining eligibility for all household members above the age of 18 with a source of income.
Gift Money for 2019 FHA Loans
In many cases, home buyers are given monetary gifts from family members to put towards a down payment or closing costs. Gift money is widely accepted across most loan products, and FHA loans are no exception. Just like other loan types, FHA loans require that the source of the gift money be documented, and a gift letter that states that the donation is not meant to be repaid.
In addition, the FHA has ruled that gift money can only come from acceptable sources such as:
A family member of the borrower
An employer of the borrower
The borrower’s labor union
A charitable organization
A down payment assistance program
A close friend (with a documented interest in the borrower)
2019 FHA Loan Limits
The loan limits for FHA financing for the year of 2019 are as follows:
Low Cost Areas
Single Family Housing - $294,515
Duplex Housing - $377,075
Tri-plex Housing - $455,800
Four-plex Housing - $566,425
High Cost Areas
Single Family Housing - $679,650
Duplex Housing - $870,225
Tri-plex Housing - $1,051,875
Four-plex Housing - $1,307,175
Mortgage Insurance Premiums for 2019
Mortgage insurance premiums (MIP) are a requirement of FHA financing, for at least 11 years of the loan term. The calculation for annual MIP payments for loan terms over 15 years are as follows:
Loans Under $625,500
LTV of 95% or below - AMIP of .80% of the loan amount
LTV over 95% - AMIP of .85% of the loan amount
Loans over $625,500
LTV of 95% or below - AMIP of 1% of the loan amount
LTV over 95% - AMIP of 1.05% of the loan amount
FHA Loan Policy Update
As of 2018, the FHA has added an extra layer to the method that they use to examine high-risk lenders. Right now, the FHA uses the “compare ratio” method, which scrutinizes the practices of all local FHA-approved lenders in order to determine their risk status. To do this, they look at the amount of late-payment FHA loans in each lender’s portfolio. However, they’ve recently updated this to be somewhat more meticulous.
Now, the FHA will take the credit scores of each late payment borrower into account as well. As of the update, late payment borrowers will be split into three groups:
Between 640 and 680
The grouping will help to better compare the performance of late-paying borrowers within their own credit groups in order to make a better decision regarding which lenders are of a higher risk. Lenders who are found to be of high risk will lose their FHA credentials and can no longer originate FHA loans.