Your FHA loan amount depends on your income, debt, credit score, and the property value in your area
The Federal Housing Administration does not set a single borrowing limit that applies to everyone. Instead, lenders calculate how much you can borrow by looking at your debt-to-income ratio — the percentage of your monthly income that goes toward debt payments — and comparing it against the maximum loan amount allowed in your county. You will also need a down payment of at least 3.5 percent of the purchase price, and your credit score typically needs to be 580 or higher, though some lenders require 620 or higher.
The actual number depends on four things working together: what you earn each month, what debts you already carry, what the property costs, and where the property is located. A lender will run these numbers to tell you a specific amount, but you can estimate your range before you talk to anyone.
Key Takeaways
- Lenders use your debt-to-income ratio to decide how much to lend — typically allowing you to borrow if your total monthly debt payments (including the new mortgage) do not exceed 43 to 50 percent of your gross monthly income.
- FHA loan limits vary by county and change each year; you can find your county's limit on the HUD website to understand the ceiling for your area.
- A 3.5 percent down payment is the FHA minimum, which means you need to have that amount saved before you can borrow the rest.
- Your credit score, employment history, and existing debts all affect whether a lender will offer you the full amount the formula allows.
- Getting pre-approved by a lender gives you a specific borrowing range and shows sellers you are a serious buyer.
How lenders calculate your maximum loan amount
Lenders start with your gross monthly income — the money you earn before taxes and deductions. They then add up all your monthly debt payments: car loans, credit cards, student loans, child support, and any other regular obligations. The total of these payments divided by your gross income is your debt-to-income ratio.
FHA loans typically allow a debt-to-income ratio of up to 43 percent, meaning your total monthly debts (including the new mortgage payment) can be no more than 43 percent of what you earn. Some lenders will go as high as 50 percent if you have a strong credit score, savings, or a co-borrower. The mortgage payment itself includes the loan principal and interest, property taxes, homeowners insurance, and mortgage insurance — a required FHA cost.
Once the lender knows your maximum monthly payment, they work backward to find the loan amount. A higher income or lower existing debts means a higher loan amount. A lower income or higher existing debts means a lower one.
County loan limits and how they affect your borrowing power
The FHA sets a maximum loan amount for each county in the United States. These limits change every year, usually in October. In low-cost areas, the limit might be around $420,000; in high-cost areas like parts of California or New York, the limit can exceed $1 million. Your county's limit is the ceiling — you cannot borrow more than that amount through an FHA loan, no matter what your income would otherwise allow.
To find your county's limit, visit the HUD website and search by state and county. The limit applies to the loan amount, not the purchase price. If you are buying a $500,000 home in a county with a $450,000 limit, you would need to put down at least $50,000 (10 percent) instead of the minimum 3.5 percent.
If the property you want costs more than your county's limit and your income-based calculation, you will need a larger down payment or you will need to look at a different property.
The role of your credit score and financial history
Your credit score affects whether a lender will lend you the full amount the debt-to-income formula allows. The FHA requires a minimum credit score of 580 to use the 3.5 percent down payment option. Scores between 500 and 579 may be possible but usually require a 10 percent down payment instead.
Beyond the minimum, a higher score — typically 620 or above — makes it easier to get approved and may allow you to reach the upper end of your borrowing range. Lenders also look at your payment history: recent late payments, collections, or a bankruptcy within the last two years can lower the amount they will lend, even if your score is acceptable.
Employment history matters too. Lenders want to see stable income. If you recently changed jobs, they may ask for a letter from your new employer confirming your position and salary. Self-employed borrowers typically need two years of tax returns to prove consistent income.
How your down payment size changes what you can borrow
The FHA minimum down payment is 3.5 percent of the purchase price. This means if you are buying a $300,000 home, you need $10,500 saved. The lender finances the remaining $289,500 (plus mortgage insurance costs, which get rolled into the loan).
If you put down more than 3.5 percent, your loan amount decreases, which lowers your monthly payment and may improve your debt-to-income ratio. Putting down 10 or 20 percent instead of 3.5 percent can sometimes allow you to borrow more overall because your monthly payment is smaller relative to your income.
Your down payment must come from your own savings, a gift from a family member, or a down payment information program. It cannot be borrowed.
What happens during pre-approval and how it differs from pre-qualification
Pre-qualification is an informal estimate. You tell a lender some basic numbers — income, debts, savings — and they give you a rough range of what you might borrow. It takes minutes and requires no documentation. Pre-qualification does not mean a lender has committed to lending you anything.
Pre-approval is formal. You provide pay stubs, tax returns, bank statements, and a credit report. The lender verifies your information and gives you a written pre-approval letter stating a specific loan amount. This letter shows sellers you are serious and have already passed a lender's initial review. Pre-approval is what you need before you make an offer on a home.
Even after pre-approval, the lender will order a home appraisal and do a final review before closing. If the home appraises for less than the purchase price, your loan amount may be reduced.
Factors that can reduce the amount you are offered
A lender may offer you less than the formula suggests if you have recent negative marks on your credit report, gaps in employment, or a very high existing debt load. Collections accounts, charge-offs, or a foreclosure in the last few years can all result in a lower offer or a denial.
The property itself can also limit your borrowing. If the home does not appraise for the purchase price, the lender will only finance based on the appraised value. If you are buying in an area with few comparable sales, the appraisal process may take longer or the appraiser may value the home lower than you expected.
Co-borrowers can help or hurt. A spouse or family member with strong income and low debt can increase your borrowing power. One with poor credit or high debt can decrease it.
Frequently Asked Questions
Can I borrow more if I have a co-borrower?
Yes. A co-borrower's income counts toward your total, which raises your debt-to-income ceiling and allows a higher loan amount. However, both borrowers' debts count too, so a co-borrower with significant existing debt may not increase your borrowing power as much as you hope.
What if I do not have 3.5 percent saved for a down payment?
Some down payment information programs exist through nonprofits, state housing agencies, and employers. These programs vary by location and income level. You can search for programs in your area through the HUD website or by contacting your local housing authority. You will still need to meet the lender's other requirements.
Does my student loan debt count against my debt-to-income ratio?
Yes. Lenders count student loan payments as monthly debt, even if you are in deferment or on an income-driven repayment plan. If you are in deferment with no current payment, some lenders may calculate a payment based on the balance. Ask your lender how they will treat your specific loans.
What if the home appraises for less than the purchase price?
The lender will only finance up to the appraised value. If you agreed to pay $350,000 but it appraises at $330,000, the lender will finance $330,000 (minus your down payment). You would need to pay the difference in cash, renegotiate the price, or walk away.
How often do FHA loan limits change?
FHA loan limits are set annually, usually in October, based on changes in home prices. The new limits take effect January 1. You can check the current year's limits on the HUD website. If you are shopping across two calendar years, your county's limit may increase, which could affect how much you can borrow.