Qualifying for an FHA loan

FHA loans have been around for many years and Guaranteed Rate knows low rates, flexible credit guidelines and low down payment requirements make FHA a great option for many.


When researching your options it’s important you are clear on what kind of mortgage best suits your financial needs. Let’s take a look at the qualities FHA likes to see in you (a borrower):

Credit requirements

Most lenders use 620 as the minimum score with a 3.5 percent down payment requirement.  However, with compensating factors, Guaranteed Rate will lend down to 580.

Debt-to-Income Ratio

Your mortgage professional will use your debt-to-income ratio to qualify you for a mortgage loan. This ratio takes into account all of your monthly debt (what is found on your credit report), your monthly income and the monthly payment of your new home. FHA suggests a back ratio no higher than 43 percent; however, FHA is flexible and has been known to exceed their suggested 43 percent.

Down Payment

FHA’s required down payment is 3.5 percent when purchasing a single family home, condo or duplex. If you are purchasing a multi-family building, FHA requires at least five percent down.


FHA is fairly flexible with gifts for down payments and closing costs. They are, however, very strict about the source of the gift funds. Under no circumstance may the gift funds come from any one person involved in the sale or purchase of your future home.

Acceptable sources for gifts:

  • Relatives
  • Employer
  • Close family friend
  • Agency sponsored homeowner assistance programs

FHA is very specific about the source of the gift funds so be sure and discuss the details with your mortgage professional.


Lenders like to see stability in a borrower and FHA is no different. FHA requires a two-year work history, preferably with the same company or at the very least the same industry.

Citizenship Status

In order obtain an FHA-insured mortgage, you must be a United States citizen and a resident of the area in which you will be signing the mortgage documents.

Reserve Requirements

Reserves are the savings you will be left with after your down payment and closing costs. One month’s reserve is equivalent to one month’s mortgage payment (principal, interest, taxes, insurance and mortgage insurance).

The Math

Assume a $200,000 mortgage with a rate of 3.875% (4.275% APR).

The following numbers are being used simply for this example; this does not reflect your mortgage scenario.

Principle & Interest: $940
Tax: $200
Insurance: $50
Mortgage Insurance: $100
Total Payment: $1290

One Month’s Reserve: $1290

While FHA does not require you have reserves when purchasing either a single family home or condominium, if you are purchasing a duplex or multi-family two–three months will typically be required.

Home Condition

The home must meet FHA’s minimum standards for the safety, quality and condition. Any defects found during the home inspection or appraisal which fall outside of FHA’s standards will need to be repaired prior to closing.

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