The Quick Read: An FHA loan has two sets of tests. The borrower has to show enough credit, income and cash. The home has to be a safe, sound place to live that you will occupy as your main residence. On a purchase, the programs Lendmire places files with allow financing up to 96.5% with a 3.5% minimum investment at a decision score of 580 or higher. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- The borrower side covers credit score, income, debt ratios, down payment and mortgage insurance.
- The property side covers occupancy, unit count, condition and the county loan limit.
- Lenders can set stricter rules than the program minimums.
- An FHA appraisal is not a home inspection. You still need your own.
What an FHA Loan Actually Is
An FHA loan is a mortgage made by a private lender and insured by the Federal Housing Administration. The agency does not lend the money. The Consumer Financial Protection Bureau says the same, and adds that FHA loans allow low down payments and lower credit scores than most conventional loans.
FHA payment estimate
Starting assumptions reflect an example price and the FHA minimum investment. Replace them with your own figures.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA loan quote.
Illustrative starting assumptions: a $350,000 price, the FHA minimum investment as the down payment, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not an FHA loan quote; your rate is set by the lender at lock. FHA mortgage insurance follows HUD’s published schedule for the term, leverage and loan size entered; taxes, insurance and dues are editable estimates; closing costs are not included; county loan limits are not checked here. Licensed in sixteen states for consumer mortgages. Lendmire is not affiliated with or acting on behalf of FHA, HUD, or the federal government.
Why does that matter? Because the insurance protects the lender if the loan goes bad. That protection is why lenders accept thinner down payments and imperfect credit. It is also why the rules exist at all: the agency is guaranteeing the loan, so it checks both the person and the house.
Lendmire is a mortgage broker. It arranges FHA loan programs through wholesale lenders, and the lenders review and decide. Everything below comes from placing these files, not from a brochure.
The Borrower Side: What You Have to Show
The borrower tests are credit, income, debts, cash and insurance. Each one feeds the same question: can you carry this payment on this home? Here is how each works.
Credit score
The lender pulls a tri-merge credit report, which combines scores from all three bureaus. It then sets one “decision score” for the file. Across the wholesale programs we place FHA files with, 580 is the starting line. At 580 or higher, the 3.5% minimum investment and 96.5% maximum financing apply.
HUD has a lower tier for scores in the 500 to 579 range, with a larger required investment. Those scores don’t reach the lenders Lendmire works with. Some lenders also set a higher floor than the program’s minimum. A score that clears the rule can still miss one lender’s bar.
Here is the catch with more than one borrower. The decision score is the lowest score among everyone on the loan. If you apply with a spouse or partner, the weaker score sets the tier for both of you.
HUD is also adding newer scoring models alongside the classic one. Its Mortgagee Letter 2026-11 states that the minimum score thresholds stay the same regardless of which model is used. So a new model does not move the goalposts.
Past credit problems
Credit events carry waiting periods. HUD’s rules call for two years after a Chapter 7 bankruptcy discharge and three years after a foreclosure. Those are HUD’s rules, not a promise that every file with a waiting period served will be placed. Lenders look at what happened since, too: on-time payments, stable work, rebuilt savings.
Income and employment
You need steady, documentable income. For a W-2 employee, that usually means recent pay stubs, W-2s and traditional personal-income documentation. Self-employed borrowers typically show traditional personal-income documentation and business records over a longer window, since the lender averages income that moves around. Retirees document pensions, Social Security or retirement distributions. Gig income counts when it has a track record.
There is no fixed minimum salary. What counts is the income relative to the debts, which brings us to ratios.
Debt-to-income ratios
Debt-to-income, or DTI, compares your monthly debts to your monthly income. FHA looks at two numbers. The housing ratio is your new housing payment divided by income. The total ratio adds your other monthly debts, such as car loans, student loans and card minimums.
The base pair is 31/43: housing no higher than 31%, total no higher than 43%, with no compensating factors needed. Documented compensating factors can stretch that up to 40/50 at the top tier. Examples include meaningful savings left after closing, a strong payment history or very stable employment. In practice, the automated underwriting finding governs most files. It weighs credit, income, assets and ratios together and tells the lender how much documentation to ask for.
A simple picture: say your gross monthly income is stated as 100 units. A 31% housing ratio means the new payment takes up to 31 of those units. A 43% total ratio means all debts, housing included, take up to 43. Same math at any income level.
Down payment and gift funds
On a purchase, the minimum required investment is 3.5% of the lesser of the price or the appraised value. That is why an appraisal that comes in under the price matters: your minimum is figured on the lower number, and you cover the gap or renegotiate.
The money can come from savings, and typically from documented gifts from family members as well. Lenders want a paper trail showing the gift is a gift, not a loan you must repay. Seller or interested-party contributions are allowed up to 6% of the price, which can help with closing costs.
Mortgage insurance
Every FHA loan carries mortgage insurance. There are two pieces. The upfront premium is 1.75% of the base loan, and most borrowers finance it into the loan. The annual premium runs between 0.15% and 0.75% of the balance, depending on the loan term, loan amount and LTV (loan-to-value, meaning the loan as a percentage of the home’s value).
How long it lasts depends on leverage. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. These are program facts, not a price quote. Your Loan Estimate shows what applies to your file. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The Property Side: What the House Has to Be
The property tests are occupancy, type, condition and size of loan. A house that fits the borrower can still fail here.
Occupancy and unit count
An FHA purchase loan is for your principal residence. You live in it. It can be one to four units. Buy a fourplex and live in one unit, and the program allows it. Buying a home you won’t occupy is outside this lane, because occupancy decides the leverage a lender will offer.
The program also helps more than first-time buyers. USA.gov lists FHA as an option for first-time buyers, seniors who own a home outright or in part, and people buying manufactured homes.
County loan limits
Loan limits are set by county and change every year. HUD publishes a floor for lower-cost areas and a higher ceiling for high-cost ones, and it provides a county lookup tool. County loan limits apply to your purchase, so check your own county before you shop. A buyer in a low-cost county is held to the floor. A buyer in a high-cost one has more room.
The appraisal and minimum property standards
FHA requires an appraisal on a purchase. The appraiser does two jobs at once. First, they estimate the home’s value. Second, they confirm the property meets HUD’s minimum property standards, which are about safety, soundness and security.
Think of it as a floor, not a grade. If something fails, the appraiser conditions the report on a repair and the appraisal is written “as-repaired.” That is the origin of the repairs-before-closing experience buyers describe.
What tends to trigger conditions? In general terms:
- Roofs near the end of their life or actively leaking
- Peeling or chipping paint, especially in older homes
- Missing handrails or unsafe stairs
- Broken heating, or no reliable water supply
- Exposed wiring or obvious electrical hazards
- Standing water or drainage problems near the foundation
When a house fails, you have choices. The seller can repair the item. You and the seller can negotiate who pays. The work may be completed and re-inspected before closing. Or you can walk away if the problem is bigger than the deal. Which path makes sense depends on the repair and the contract.
Appraisal versus home inspection
They are not the same thing. HUD’s own valuation guidance says the appraiser provides only a preliminary check against property standards, and the underwriter decides eligibility. The appraiser is not looking for a failing furnace that still technically runs, or a slow plumbing leak. Hire a home inspector. The FHA appraisal protects the lender’s collateral. The inspection protects you.
Agency Rule Versus Lender Overlay
The program minimum and a given lender’s requirements are two different things. HUD publishes the baseline in its Handbook 4000.1, the rulebook lenders follow. A lender can add its own stricter conditions on top, called overlays.
Common overlays raise the credit floor, tighten ratios or ask for extra reserves. That is why one lender can say yes to a file another turns down, even though both follow the same program. Across the wholesale network Lendmire uses, a broker can compare how different lenders treat the same file. That comparison is the practical value of using one.
Edge Cases Where the Standard Rules Bend
Manufactured homes. HUD has historically required a minimum floor area, construction after a mid-1970s federal date, and classification as real estate. Confirm the current handbook rules with your lender.
Multi-unit homes. Two-, three- and four-unit homes carry higher county limits than one-unit homes. You must still occupy one unit.
Non-occupant co-borrower. A relative or other person who won’t live in the home can sign on to help with qualifying. This is allowed on the programs we place. Lendmire’s piece How to Structure an FHA Loan With a Non-Occupant Co-Borrower walks through how that works.
Renovation loans. FHA has a rehab program, the 203(k), for buying and fixing in one loan. Ask your lender for the current limits.
Refinancing. Existing FHA borrowers have three paths. The Streamline needs no appraisal and only a limited credit review, but it must show a net tangible benefit, and the premium continues. The FHA rate-and-term refinance uses an appraisal and reaches 97.75% on a principal residence occupied for the previous twelve months. The FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. For the cash-out path, see Lendmire’s article Can an Existing FHA Borrower Use an FHA Cash-Out to Renovate?. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Reverse mortgages. Home equity conversion mortgages are a separate FHA program with separate rules. Don’t mix them with a purchase loan.
How the Two Sides Meet in the Process
Here is where each requirement gets checked, start to finish.
1. Application. You apply with an FHA-approved lender. The lender pulls your tri-merge credit and sets the decision score.
2. Automated review. The underwriting system weighs credit, income, assets and ratios, then recommends a level of documentation.
3. Documentation. You supply pay records, traditional personal-income documentation, bank statements and gift letters if they apply.
4. Appraisal. The appraiser values the home and checks minimum property standards. Conditions get written here.
5. Underwriting decision. The underwriter reviews everything together, including any repair completion.
6. Closing. Mortgage insurance is collected at closing and monthly after that. Your Loan Estimate and Closing Disclosure show the terms.
Notice the pattern. Most surprises come at steps 4 and 5, when property problems meet borrower numbers. That is why a preapproval is only the first half of the answer.
Which Requirements Matter Most for Your Situation
You have a modest down payment and a middling score. This is the classic FHA fit. The CFPB notes that for borrowers with lower scores or smaller down payments, FHA can often be a more affordable option. For borrowers with good credit and a medium down payment, it tends to cost more than conventional. Compare both.
You’re buying a fixer-upper. Expect the appraisal to flag condition problems. Decide early whether a rehab loan fits better than a standard purchase.
You’re buying a duplex and living in one side. The occupancy rule is the key test. Your own unit has to be your principal residence.
You’re using gift money. Line up the gift letter and the transfer records before you write an offer. Missing paperwork is a common stall.
You have a bankruptcy or foreclosure behind you. Check HUD’s waiting periods against your discharge or sale date first.
You’re married or buying with a partner. Remember the lowest score sets the tier.
Key Terms Defined
Decision score: the single credit score a lender uses for the file, set from the lowest borrower-level score on the loan.
LTV (loan-to-value): the loan amount as a percentage of the home’s value or price.
Minimum required investment: the cash you must put in, figured as a percentage of the lesser of price or appraised value.
DTI (debt-to-income): your monthly debts divided by your gross monthly income.
Compensating factor: a documented strength, such as savings or steady work, that offsets a weaker part of the file.
Overlay: a lender’s own rule that is stricter than the program minimum.
Minimum property standards: HUD’s baseline for a home’s safety, soundness and security.
Frequently Asked Questions
Is there a minimum income to get an FHA loan?
No fixed dollar minimum exists. What matters is whether your documented income supports the payment within the ratio limits. The base pair is 31/43, and compensating factors can reach 40/50. Subject to lender guidelines.
Can I use FHA to buy a home I plan to rent out?
No. An FHA purchase loan is for a home you will live in as your principal residence. Occupancy decides the leverage a lender offers, so a home you won’t occupy falls outside this program.
Does a failed appraisal condition end the deal?
Not necessarily. The seller can repair the issue, you can negotiate who pays, or the work can be finished and re-checked before closing. If the repair is too big or the seller refuses, you may walk away depending on your contract.
Does my credit score change my mortgage insurance?
Mortgage insurance is required on every FHA loan. The annual premium depends on loan term, loan amount and LTV. The decision score mainly sets your eligibility tier and down payment, so confirm how your lender applies it.
Who orders the FHA appraisal?
The lender orders it, not you. It serves the lender and the insurer, which is why you should still pay for your own home inspection.
If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. You can reach the team at 828-256-2183. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Consumer Financial Protection Bureau – FHA loans
2. HUD – Mortgagee Letter 2026-11
3. USA.gov – Government-backed home loans
4. HUD – FHA Single Family Lenders, maximum mortgage limits
5. HUD – FHA Single Family Housing Policy Handbook 4000.1
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Loan vs VA Loan for an FHA Borrower With Equity · Can You Get an FHA Loan and What Decides Approval? · FHA Cash-Out Refinance Requirements Versus an FHA Streamline
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.