The Five Things FHA Lenders Look At

FHA lenders check five main things: your credit score, your debt-to-income ratio, your employment history, the property itself, and your down payment. You do not need perfect credit or a large down payment — that is the point of the FHA program — but lenders do verify each of these before they commit money. The process takes roughly 30 to 45 days from process to closing, though this varies by lender and how quickly you provide documents.

The FHA does not lend the money itself. The Federal Housing Administration insures the loan, which means it promises to cover the lender's loss if you stop paying. Because the government backs the loan, lenders can afford to be more flexible on credit and down payment than they would be on a conventional mortgage. That flexibility has limits, though — lenders still need to know you can actually pay them back.

Key Takeaways

  • FHA lenders require a credit score of 580 or higher for a 3.5 percent down payment, though some lenders set their own minimum higher than that.
  • Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — cannot exceed 43 percent for most lenders, though some go up to 50 percent.
  • You must show two years of employment history, and lenders will contact your current employer to confirm you still work there.
  • The property must pass an FHA appraisal, which checks that it is safe, structurally sound, and worth what you are paying for it.
  • You need a down payment of at least 3.5 percent of the purchase price, and you can use gift money from family to cover it.

Credit Score and Payment History

The FHA's official minimum credit score is 580, which qualifies you for the lowest down payment of 3.5 percent. If your score is between 500 and 579, you can still get an FHA loan, but you will need a down payment of at least 10 percent. Many individual lenders set their own minimum higher than 580 — some require 620 or even 640 — so your score alone does not determine whether you will be approved.

Lenders look at more than just the number. They examine your payment history over the past two years, checking for late payments, collections, or charge-offs. A single late payment from five years ago matters less than a pattern of recent missed payments. If you have had a major event like a foreclosure or bankruptcy, lenders want to see that you have rebuilt credit since then — typically at least two years of on-time payments after a foreclosure, or three to four years after a bankruptcy discharge.

Recent credit inquiries and new accounts can lower your score temporarily. If you are shopping for an FHA loan, do your rate shopping within a 45-day window — multiple inquiries in that period count as one inquiry for scoring purposes. Avoid opening new credit cards or taking out new loans while your process is in process.

Debt-to-Income Ratio and Monthly Obligations

Your debt-to-income ratio is the percentage of your gross monthly income that goes toward debt payments. The FHA's standard limit is 43 percent, meaning if you earn $4,000 a month, your total monthly debt payments (including the new mortgage) cannot exceed $1,720. Some lenders will go up to 50 percent if you have strong credit, savings, or a low loan-to-value ratio, but 43 percent is the baseline.

Lenders count all monthly debt obligations: car loans, student loans, credit card minimums, child support, alimony, and the new mortgage payment. They do not count utilities, insurance, or rent you currently pay — those are replaced by the mortgage. The mortgage payment itself includes principal, interest, property taxes, homeowners insurance, and the FHA mortgage insurance premium.

If your ratio is too high, you have two options: increase your income (by adding a co-borrower, for example) or decrease your debt. Paying off a car loan or credit card before explore can lower your ratio enough to may have access to. Some lenders will not count a debt if you can show it will be paid off within a few months, so ask your lender whether any of your obligations might be excluded.

Employment History and Income Verification

Lenders require two years of employment history. This does not mean you must have worked for the same employer for two years — job changes are normal and acceptable. What lenders want to see is that you have been continuously employed, or that any gaps are explained. If you changed jobs in the past two years, bring documentation from both employers: offer letters, pay stubs, or employment verification letters that show your start date and current status.

Your lender will contact your current employer to verify that you still work there and confirm your income. This is a standard part of the process and happens near the end of underwriting, usually a few days before closing. If you are self-employed, you will need to provide two years of tax returns, profit-and-loss statements, and sometimes a CPA letter confirming your income.

Recent job changes or gaps in employment do not automatically disqualify you. If you left a job for a legitimate reason — a layoff, a move, going back to school — document it. If you are in a probationary period at a new job, some lenders will wait until the probation ends before finalizing the loan. Ask your lender upfront what they need to see.

The FHA Appraisal and Property Requirements

The property itself must pass an FHA appraisal. An FHA-approved appraiser inspects the home and confirms three things: that it is safe to live in, that it is structurally sound, and that its value supports the loan amount. The appraisal is ordered by the lender and paid for by you (usually $400 to $600), but the appraiser works for an independent company, not the lender.

Common reasons a property fails FHA appraisal include missing handrails on stairs, exposed wiring, roof damage, foundation cracks, mold, or a septic system that does not meet local codes. The seller is responsible for fixing these issues before closing — the FHA will not insure a loan on a property that does not meet its safety standards. If repairs are needed, the seller can either fix them or credit you money at closing to fix them yourself.

The appraisal also confirms that the home's value justifies the purchase price. If the appraised value comes in lower than the purchase price, you have a few options: renegotiate the price with the seller, increase your down payment to make up the difference, or walk away. The lender will not lend more than the appraised value.

Down Payment and Gift Money

The minimum down payment for an FHA loan is 3.5 percent of the purchase price. On a $200,000 home, that is $7,000. You do not have to save this money yourself — the FHA allows you to use gift money from family members. The gift must come from a relative (spouse, parent, sibling, grandparent, or in-law), and the person giving the gift must sign a gift letter stating that the money does not have to be repaid.

Some lenders require that you contribute at least 1 to 2 percent of the down payment from your own funds, even if the rest is a gift. This shows "skin in the game" and reduces the lender's risk. Ask your lender about their specific gift policy before you ask family for money.

Closing costs are separate from the down payment. You will owe appraisal fees, title insurance, loan origination fees, and other costs that typically add up to 2 to 5 percent of the loan amount. Some of these costs can be paid by the seller or rolled into the loan, but you should plan for at least some out-of-pocket expense at closing.

Frequently Asked Questions

Can I get an FHA loan if I have had a foreclosure or bankruptcy?

Yes, but lenders require a waiting period. After a foreclosure, you typically need to wait three years and show two years of on-time payments on other accounts. After a bankruptcy discharge, the waiting period is usually two years for Chapter 7 or one year for Chapter 13 (if you are still making payments). Some lenders have longer waiting periods, so ask before you assume you are disqualified.

What if my credit score is below 580?

You can still get an FHA loan with a score between 500 and 579, but you will need a 10 percent down payment instead of 3.5 percent. Some lenders do not work with scores below 580, so you may need to shop around. Alternatively, you could wait a few months while you pay down debt or dispute errors on your credit report to raise your score.

Do I need a co-signer to get an FHA loan?

No, the FHA does not require a co-signer. However, if your debt-to-income ratio is too high or your credit is weak, adding a co-borrower (someone who will be on the loan and the deed) can strengthen your process. A co-signer who is not on the loan does not help with FHA loans the way it does with other types of loans.

How long does the FHA approval process take?

From process to closing typically takes 30 to 45 days. This assumes you provide documents promptly and there are no issues with the appraisal or underwriting. Delays happen when documents are missing, when the property fails appraisal, or when the lender needs clarification on your income or credit history.

Can I use my 401(k) or IRA for the down payment?

You can withdraw from a 401(k) or IRA for the down payment, but you will owe income tax and possibly a 10 percent early withdrawal penalty (unless you are over 59½ or meet an exception). The lender will count the withdrawal as income on your process, which may affect your debt-to-income ratio. Talk to a tax professional before you withdraw.