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FHA Loan

FHA loans are mortgages insured by the Federal Housing Administration (hence, FHA), which is run by the Department of Housing and Urban Development (HUD).

The government created these loans to make homeownership accessible to those with low-to-average credit and who struggle to save up large down payments.

Before FHA’s invention in 1934, lenders would deny mortgages to borrowers with less-than-stellar finances. But the FHA insures the loans, alleviating some of the risk.

When we refer to FHA loans in this article, you can assume we mean FHA 203b loans, which are used for home purchases. But the FHA also insures other loan types, including refinancing and renovation loans.


*DTI ratio is monthly debt/expenses divided by gross monthly income. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA, and where not approved by a government agency.


*580 minimum credit score only available to third party otherwise the minimum Fico may be limited to 600.
**Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA, and ere not approved by a government agency.

Are there FHA loan income limits?

Good news: there are no FHA loan income limits.

That doesn’t mean income doesn’t matter. Lenders need to make sure you can afford your monthly mortgage payments, and they’ll need documentation to prove it.

Fortunately, plenty of income types count:

  • W2 wages
  • Freelance or gig work income
  • Investment income
  • Social Security income
  • Supplemental Security Income
  • Social Security Disability Insurance

A loan officer may ask you for pay stubs, tax returns, and other verification of income before your loan can move on to underwriting (a key stage in the process).

Mortgage lenders also use your income to calculate your debt-to-income ratio (DTI), which we’ll talk more about in just a minute.

FHA employment requirements

When you apply for an FHA mortgage, lenders will ask for two years of employment history.

If you’ve been an employee of the same company for at least two years, the lender may ask to see your most recent pay stubs to verify your income.

But what if you’re self-employed? You can still buy a house; you’ll just need two years of personal and business tax returns to prove your income. Lenders may also require profit and loss (P&L) statements and other business documents.

Maybe your circumstances aren’t straightforward. You started freelancing and don’t have two years of tax returns. That’s OK, as long as you have been self-employed at least a year and have two years’ experience in the same line of work prior to that.

Perhaps you recently graduated college and started a new job. The good news is, your degree program may count toward your work history. As long as your income is stable and your job is secure, you can still qualify for a mortgage.

The lender’s goal is to make sure you can afford your mortgage payments. The more prepared you are to demonstrate that, the better your chances of approval.

FHA loan credit score and down payment requirements

Here are a two key features to know about FHA loans:

  • Minimum credit score: 580*
  • Minimum down payment: 3.5%

*580 minimum credit score only available to third party otherwise the minimum Fico maybe limited to 600.

Credit score

FHA guidelines actually allow borrowers with credit scores as low as 580 to qualify. However, if your score is 580-600, you’ll need a 10% down payment. Not all lenders will go that low on credit score. A lender will pull your credit report when you apply for prequalification or preapproval, and they may charge you a small fee — about $30 or less — to cover that cost.

Wait. I don’t have a credit score

Not to worry. FHA loans don’t require borrowers to have a traditional credit score. Your lender will likely want to see history of on-time payment of rent, utilities, and other monthly costs.

If you don’t have a credit history, it’ll be all the more important to show that you have steady income and/or employment.

Down payment

If you’re unable to save up for a 3.5% down payment, FHA lets you use gift funds to cover the cost. Gifts can come from a number of sources, including:

  • Friends and family
  • Your employer
  • Charities
  • Approved down payment assistance programs

Lenders need to source all of the money you use to buy your home, so you can’t use cash on hand (mattress money) for a down payment. Make sure there’s a paper trail for all funds, whether they are from a gift or personal savings. Gather deposit and transfer records.

You’ll also need a gift letter signed by the person giving you the money stating that it was a gift and you do not have to repay it.

Types of eligible property types with conventional loans

There are a few eligible property types that can be considered when financing a conventional loan. Some of those property types include:

  • 1-4 Unit Properties
  • HUD Approved
  • Condos
  • Single Unit Approval
  • Leaseholds
  • Manufactured
  • Housing
  • Renovation

Who is eligible for an FHA loan?

U.S. citizens and permanent and non-permanent resident aliens are eligible for FHA loans, as well as Deferred Action for Childhood Arrivals (DACA) recipients.

Eligibility requirements to know:

  • The home must be your primary residence
  • You are eligible to work in the U.S. 
  • You have a Social Security Number
  • You meet all other FHA loan requirements

Keep in mind that eligibility isn’t the same as qualification. You’ll still need to meet a lender’s approval standards, even if you’re technically eligible for an FHA loan.

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