If you’ve been scrolling through mortgage options, the FHA loan probably popped up a lot. It’s popular because it lets buyers with modest savings and less‑than‑perfect credit get a loan. But you can’t just apply and hope for the best – there are concrete rules you need to meet. Below is the practical rundown of what the FHA looks for, plus tips on how to line up those boxes.
First off, the FHA doesn’t care where you live, as long as the property is in the United States and will be your primary residence. That means you can’t use it as a vacation home or investment property.
Credit score: The official minimum is 500, but that comes with a 10% down payment. Most lenders will require at least 580, which drops the down payment to 3.5%. If you’re close to 580, work on paying down balances and fixing any errors on your report before you apply.
Down payment: As mentioned, 3.5% of the purchase price is the standard if your credit is 580+. For a £200,000 home, that’s £7,000. The money can come from a gift, a grant, or a qualified savings account – you don’t need to have it all saved yourself.
Debt‑to‑income (DTI) ratio: The FHA prefers a DTI of 43% or lower. That means your monthly debt payments (credit cards, car loans, etc.) plus your projected mortgage payment shouldn’t exceed 43% of your gross monthly income. Some lenders will stretch to 50% if you have a strong overall profile.
Employment history: Lenders want to see at least two years of steady employment, preferably with the same employer or in the same field. Gaps are okay if you can explain them and show you have enough cash reserves.
Property standards: The house must meet HUD’s minimum property standards. The FHA will send an appraiser who checks for safety, structural soundness, and basic livability. Major repairs can be a deal‑breaker unless you negotiate a repair escrow.
Now that you know the checklist, here’s how to get yourself ready.
1. Boost your credit: Pay down revolving balances, keep credit card usage under 30% of limits, and dispute any inaccuracies. Even a 20‑point bump can move you from a 10% down payment to 3.5%.
2. Save or source your down payment: If you’re close to the target, consider a gift from a family member. The donor will need to fill out a simple letter confirming the money is a gift, not a loan.
3. Trim debt: Before you apply, pay off or consolidate high‑interest credit cards. Lowering your DTI not only helps you meet the FHA rule, it also shows lenders you’re a lower‑risk borrower.
4. Gather paperwork: Get your pay stubs, W‑2s, tax returns, and bank statements organized. Having a clean folder speeds up the underwriting process.
5. Choose an experienced FHA lender: Not all banks handle FHA loans the same way. Look for a mortgage broker who knows the ins and outs of FHA paperwork – they can help you avoid common pitfalls.
6. Plan for closing costs: Even with a low down payment, you’ll need cash for fees, inspection, and the FHA mortgage insurance premium (MIP). Budget an extra 2‑5% of the loan amount for these costs.
Once you’ve lined up these pieces, reach out to a lender and start the pre‑approval process. Pre‑approval gives you a clear price range and shows sellers you’re serious.
Remember, the FHA is designed to make homeownership accessible. By meeting the basic credit, down payment, and DTI thresholds, you’re already in a good spot. The extra steps above simply polish your application so the lender can move quickly.
Ready to test the waters? Pull your credit report, do a quick DTI calculation, and see how much you’d need for a 3.5% down payment. If the numbers look promising, the next move is a conversation with an FHA‑approved lender. You might be closer to your first home than you think.
