What are the Current FHA Loan Requirements?

One of the best ways to purchase a house is to pay 100 percent in cash. However, if you are finding it hard to save up sufficient cash, you may be better off getting a home loan that is backed by the FHA (Federal Housing Association).

Image showing an FHA loan application form.

What is an FHA Loan?

An FHA home loan is a government-backed mortgage. They are provided by FHA Approved lenders, but FHA insures the mortgage. Back in 1934, congress created FHA home loans to help people qualify for home loans…they are uniquely suitable for many borrowers, specifically including low-to-moderate-income borrowers. Compared to most conventional options, these loans require lower credit scores and a low minimum investment or down payment. FHA home loans are also popular with many first-time homebuyers because of their guidelines and most Down Payment Assistant programs are built on FHA loan programs!  

2020 FHA Loan Requirements

Keep in mind that your lender will still thoroughly evaluate your various qualifications, such as debt-to-income ratio, work history, and credit. However, it is worth noting that an FHA loan is usually an alternative for homebuyers who have a difficult time getting approved for a traditional loan. Although each FHA-approved lender may have their unique restrictions and conditions, the main requirements for an FHA home loan are not as stringent as those for conventional loans. For instance, if someone doesn’t have a credit score because they are young or a “limited credit user”, the lender may also consider your other payment-history documents and records, like rent and utility payments. 

Some basic requirements for an FHA loan are:

  • If your credit score is below 600 then you will need between a 3.5 and 10% down payment
  • Higher Debt to Income allowances
  • There is an upfront mortgage insurance premium (MIP) cost and then a monthly mortgage insurance cost
  • The waiting period after a bankruptcy is two years
  • You’ve not had a foreclosure in the past three years
  • FHA will allow 100% of your Down Payment and Closing Costs to be in the form of a gift

Remember, when shopping, not all lenders are FHA Approved. Don’t forget to ask!

FHA Loan Limits for 2020

Each year, FHA looks at several factors, such as fluctuations of the different housing markets and the cost of living, and adjusts the maximum loan amounts in each county. For 2020, the new floor limit for an FHA home loan in most parts of the country is $331,760. This means that every county can go at least that high. And for high-cost areas, the ceiling in some counties can now go as high as $765,600, up from $726,525 one year ago. Note that these limits are called “floors” and “ceilings” that FHA will insure.

Final Thoughts

With current mortgage rates in the US hovering at record lows, FHA loan rates are also generally competitive. To find out if an FHA is a right choice for you, and to get Pre-Approved, please reach out to Big Valley Mortgage and one of our Loan Officers can help you out!