FHA Home Loans: Rates and Requirements (2024)

FAQs

What will disqualify you from an FHA loan? ›

The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.

In general, it's easier to qualify for an FHA loan than for a conventional loan, which is a mortgage that isn't insured or guaranteed by the federal government. Here are some key differences between FHA and conventional loans: Credit score and history: FHA loans allow for lower credit scores than conventional loans.

FHA appraisal and inspection checklist

Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.

While FHA loans are known for their lenient credit requirements, a history of late payments, bankruptcies, or high credit utilization can still lead to denial. Lenders use credit history as an indicator of a borrower's ability to manage debt responsibly.

The FHA's three requirements are that a property must be safe, secure, and structurally sound to qualify for one of their loans. Properties cannot have adverse conditions that might imperil the homeowner, and must meet proper building codes. As a buyer, these standards protect you from buying an unsafe property.

FHA loans require a minimum 3.5 percent down payment for borrowers with a credit score of 580 or more. Borrowers with a credit score of 500 to 579 need to put 10 percent down.

FHA Loan Limits

According to HUD, the maximum FHA lending amount for high-cost areas (such as large metropolitan areas) is $1,149,825 for 2024. In lower-cost areas, the FHA limits are based on county, but generally, for one-unit properties the 2024 limit is $498,257. If you have multiple units, limits may be higher.

If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.

Those with scores of 580 or higher only need a 3.5% down payment. → 3.5% down payment. You can finance all but 3.5% of the home's purchase with an FHA loan provided your credit score tops 580. Buyers with lower scores have to make at least a 10% down payment.

What is the 2 FHA loan rule? ›

A second FHA loan may be allowable for homebuyers who meet these qualifying criteria: You're relocating for a new job and need a new primary residence. The new home is more than 100 miles away from your current FHA-financed home. You're getting a divorce and you intend to purchase a new home in your name only.

For 2024, the national conforming loan limit for a one-unit property is $766,550. That means the FHA loan limit is $498,257 in low-cost areas and $1,149,825 in high-cost areas.

The largest concern sellers have with FHA loans is the appraisal/inspection process. FHA loans have the reputation of having strict requirements for appraisals and inspections. The FHA has what they call 'Minimum Property Requirements,' if a property doesn't meet even one of them, financing falls through.

The property needs to be free of known hazards that affect health and safety, the home's use, or may affect the structural soundness of the house and its marketability. These include, but are not limited to: Toxic chemicals. Radioactive materials.

Either the seller will have to tend to these repairs or the buyer must pursue alternative funding options, such as an FHA 203(k) Loan. Common issues that may result in a failed inspection include: Heating, plumbing, or electrical issues. Leaking, damaged, or inadequate roofing.

Reasons your mortgage application may be denied include a dip in your credit score, increased debt, paperwork errors, a low home appraisal and unverified cash deposits.