FHA Loan Eligibility Checker
FHA loan is a government‑backed mortgage program administered by the U.S. Department of Housing and Urban Development (HUD) that lets borrowers with modest down payments and flexible credit standards become homeowners.
Quick Takeaways
- Credit score below 580 usually knocks you out, unless you can cover a 10% down payment.
- Debt‑to‑income (DTI) over 43% is a red flag for most lenders.
- Recent bankruptcy, foreclosure, or tax lien can trigger an automatic denial.
- Property appraisal that shows a loan‑to‑value (LTV) above the 96% limit will block approval.
- Missing or incorrect income documentation is an easy fix that saves the deal.
Why Credit Score Matters
Credit score is a three‑digit number representing your creditworthiness, calculated from payment history, amounts owed, length of credit history, new credit, and credit mix. The FHA sets a minimum of 580 for a 3.5% down payment; scores between 500‑579 require at least 10% down. Lenders often tighten the rule to 620 to mitigate risk. A low score can stem from late payments, maxed‑out cards, or a recent collection, each of which raises the perceived risk of default.
Debt‑to‑Income Ratio (DTI) Limits
Debt‑to‑income ratio measures monthly debt obligations divided by gross monthly income. FHA guidelines cap the front‑end DTI (housing costs) at 31% and the back‑end DTI (all debt) at 43%. Some lenders stretch to 50% if the borrower shows strong compensating factors, such as a large cash reserve. To lower DTI, pay down credit cards, refinance existing loans, or boost income with a side gig.
Bankruptcy and Foreclosure History
Bankruptcy is a legal proceeding that discharges or reorganizes debt. An FHA loan can be obtained after a Chapter 7 bankruptcy once two years have passed, or after a Chapter 13 once the repayment plan is complete and the court grants a discharge. Foreclosure is the loss of a property due to failure to meet mortgage obligations. A foreclosure must be at least three years old for a new FHA loan. Lenders may also consider the reason for the loss; a job loss may be viewed more leniently than repeated defaults.
Delinquent Taxes and Liens
Unpaid property taxes or a tax lien signal a borrower’s inability to meet financial obligations. The FHA requires all tax liens to be satisfied before closing. If the lien is less than $2,500, a lender may waive it with a written agreement, but most will insist on full payment because a tax lien can become a senior claim on the property.
Employment and Income Verification
Employment history tracks the borrower’s job stability over the past two years. Gaps longer than three months need an explanation; self‑employed borrowers must provide two years of tax returns and a profit‑and‑loss statement. Inconsistent income or missing pay stubs can instantly halt the loan process. Keeping organized records and providing a letter from the employer about future earnings can smooth the path.
Property Appraisal and Loan‑to‑Value (LTV)
Loan‑to‑value ratio compares the loan amount to the appraised value of the home. FHA caps LTV at 96.5% for most properties; some high‑cost areas allow up to 97%. If the appraisal comes in low, the borrower must either increase the down payment or negotiate a lower purchase price. Property appraisal is an inspection performed by an FHA‑approved appraiser to ensure the home meets safety, habitability, and market value standards. Major issues like roof damage, cracked foundations, or damp basements must be repaired before the loan can close.
Mortgage Insurance Premium (MIP) Rules
The FHA requires an upfront MIP of 1.75% of the loan amount plus an annual MIP that ranges from 0.45% to 1.05% depending on loan size and LTV. Borrowers with a high LTV (>95%) or a loan term longer than 15 years face the higher end of the scale. Excessive MIP can make monthly payments unaffordable, causing lenders to reject the loan. Sometimes refinancing into a conventional loan after building equity reduces the MIP burden.
How to Fix Common Disqualifiers
- Boost your credit score: Pay down balances, dispute errors, and keep credit cards open for a longer history.
- Reduce DTI: Consolidate high‑interest debt, refinance auto loans, or temporarily increase income.
- Settle tax liens: Pay the outstanding amount or arrange an installment plan approved by the IRS.
- Address appraisal issues: Request a re‑inspection after repairs or negotiate a price reduction.
- Document income: Provide recent pay stubs, W‑2s, and a detailed profit‑and‑loss sheet for self‑employed borrowers.
| Factor | FHA Loan | Conventional Loan |
|---|---|---|
| Minimum Credit Score | 580 (3.5% down) / 500‑579 (10% down) | 620‑640 typical, 700+ for best rates |
| Maximum DTI | 43% (can stretch to 50%) | 36%‑45% (varies by lender) |
| Bankruptcy Waiting Period | 2 years (Chapter 7) / 1 year (Chapter 13) | 4‑6 years |
| Foreclosure Waiting Period | 3 years | 7 years |
| Down Payment Requirement | 3.5% (or 10% for low scores) | 5%‑20% depending on program |
| Loan‑to‑Value Limit | 96.5% (most cases) | 80%‑95% typical |
Related Topics You Might Explore Next
Understanding FHA loan eligibility is just one piece of home‑buying. You may also want to read about:
- How mortgage interest rates affect overall affordability.
- The role of HUD-approved counseling in strengthening your loan package.
- Differences between FHA streamline refinancing and traditional refinancing.
- Eligibility for VA loans if you’re a veteran.
Frequently Asked Questions
Can I get an FHA loan with a credit score of 560?
Yes, but you’ll need to put down at least 10% of the purchase price. Some lenders may still require a higher score, so shop around and be ready to provide a larger down payment.
How long after a bankruptcy can I qualify for an FHA loan?
For a Chapter 7 bankruptcy, you must wait 2 years from the discharge date, provided you’ve re‑established good credit. For Chapter 13, the waiting period drops to 1 year after you’re approved under the repayment plan.
What DTI ratio is considered safe for an FHA loan?
The standard back‑end DTI limit is 43%. If you have strong compensating factors-like a large cash reserve or a low loan amount-some lenders will stretch it to 50%.
Do I need to pay mortgage insurance on an FHA loan forever?
Unlike conventional loans, FHA mortgage insurance lasts for the life of the loan if your original LTV was above 90%. If you put down 10% or more, the annual MIP cancels after 11 years.
What happens if the appraisal comes in low?
A low appraisal forces you to either increase your down payment to meet the LTV ceiling or renegotiate the purchase price with the seller. In some cases, you can request a reconsideration of value if you have comparable sales data.
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