FHA Loan Requirements for 2017  

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FHA loan requirements for 2017 are contained in a 1,009-page "handbook" published by the U.S. Department of Housing and Urban Development. You would need at least a 20-ounce cup of coffee with a turbo shot just to stay awake through the first 20 pages. Good news: You don't have to.

Here's what you need to know about the requirements to borrow an FHA loan without the government jargon and footnotes.

FHA loan down payment

A core requirement in getting an FHA-insured loan is a FICO credit score of 500 or better. That gets you in the door, but to snag the lowest down payment, you'll need a much higher credit score.

"To qualify for FHA's minimum down payment of 3.5%, a borrower must have a credit score of 580 or above," Brian Sullivan, HUD public affairs specialist, tells NerdWallet. "Between 500 to 579, the borrower must put 10% down."

FHA loan income requirements

There is no minimum - or maximum - salary you can earn that will qualify or prohibit you from getting an FHA-insured mortgage. However, you must:

  • Have at least two established credit accounts. Examples: a credit card and a car loan.
  • Not have delinquent federal debt or judgments - tax-related or otherwise - or debt associated with past FHA-insured mortgages
  • Account for cash gifts that help with the down payment. These gifts must be verified in writing, signed and dated by the donor.

FHA debt-to-income requirements

Your total debt-to-income ratio - including the new mortgage, credit cards, student loans and any other monthly obligations - must be 50% or less, according to Sullivan.

FHA loan limits

The property must meet FHA geographic loan limits. In 2017, that's generally $275,665 for single-family homes in low-cost areas and $636,150 in high-cost areas. Alaska, Hawaii, Guam, and the Virgin Islands have limits up to $721,050.

FHA property requirements

In addition to borrower qualifications, the property itself must meet certain requirements before you can qualify for an FHA mortgage.

  • Investment properties are not eligible
  • The property can't be a flip: meaning you can't buy a house within 90 days of a prior sale
  • You must take title to the property in your own name or in the name of a living trust at settlement
  • The loan must be for a principal residence, and at least one borrower must occupy the property within 60 days of closing
  • An FHA appraisal includes a strict inspection, assessing a home not only on value but also on minimum property standards

FHA documentation

Here is some of the documentation you will need when applying for an FHA home loan.

  • You must show proof of a Social Security number
  • Provide original pay stubs, W-2 forms or valid tax returns, as necessary

Of course, there are other stipulations - remember the handbook is 1,009 pages - but an FHA-approved lender will walk you through the details if other requirements apply to you.

There are lender requirements, too

The FHA is insuring the loan, but a lender makes the final decision - and can determine what specific qualifications they require.

"We can set our standards, and we can say, 'If you meet these requirements, FHA will insure a mortgage on that loan.' And yet, lenders may add on what are called 'credit overlays' on top of our standards, and make it that much harder to qualify for a loan that they originate," Sullivan says.

Those requirements can include a higher FICO credit score, or a better debt-to-income ratio. It's a good reason to shop more than one lender.

» MORE: Best lenders for FHA loans

What if you don't meet all FHA requirements?

"FHA's standard underwriting criteria is rolled up into a 'scorecard' that considers many factors related to income and debt," Sullivan says. "Under certain conditions, particularly when a borrower doesn't fit into our general scorecard requirements, a manual underwriting is required."

That means if your situation doesn't neatly fit within all the guidelines, a lender may consider your loan application as a one-off instance; an exception. Frankly, lenders aren't always eager to do that.

Is an FHA loan right for you?

"This [program] is for working families of relatively modest means," Sullivan notes. It can be a good option, especially for first-time home buyers, he says. Not only are the credit qualifications easier to meet, but FHA loans also come with low mortgage rates , though lenders set rates, not the FHA.

However, a low mortgage interest rate and small-down-payment loan backed by the FHA does come at a cost. Borrowers with FHA-backed loans pay mortgage insurance premiums - an upfront payment as well as an ongoing fee built into their monthly payment for the life of the loan - that protect the lender from a loan default.

But an FHA-insured loan is not the only low-down-payment alternative . If you are serving or have served in the military, you may qualify for a loan backed by the Department of Veterans Affairs. A VA loan requires no down payment.

And if your credit history is in good shape, you might want to consider a low-down-payment conventional mortgage . You will likely pay a slightly higher interest rate, but the mortgage insurance can be canceled after you gain enough equity in your home, unlike with an FHA loan.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: hal@nerdwallet.com . Twitter: @halmbundrick .

The article FHA Loan Requirements for 2017 originally appeared on NerdWallet .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Insurance , Credit Cards

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