What are the fha guidelines for income and debt ratios?

Mortgages backed by the Federal Housing Administration have different requirements from other types of home loans. Though you don't have to be a newbie, FHA loans are often popular with first-time homeowners because they couple lower down payment requirements with more lenient standards for credit scores and existing debt. Here's a rundown of the key FHA loan requirements.

FHA guidance allows lower credit scores, which is one reason first-time home buyers are often attracted to FHA loans. The FHA lets borrowers with credit scores as low as 500 be considered for home loans.

However, it's important to bear in mind that while the FHA sets out guidelines for credit score minimums, FHA lenders may require higher minimum scores. FHA loans don't come directly from the government; the FHA insures them on behalf of the lender. Despite having that as backup, lenders often choose to minimize their risk by mandating higher credit minimums. This is one of the reasons why it's smart to shop and compare FHA lenders. Not only might they have different qualifications, but you can also weigh different lenders' rates and fees.

It's worth noting that even with a lender who's following FHA guidelines to the letter, you'll get better terms (like a lower down payment and more allowance for existing debt) if you have a higher credit score. A stronger credit score should also help you get a better FHA mortgage rate.

» MORE: Ways to build credit fast

With an FHA loan, the minimum down payment depends on your credit score. If you have a credit score that's 580 or higher, the minimum down payment is 3.5%.

If your score falls between 500 to 579, the minimum down payment required is 10%. FHA guidelines sometimes refer to this as the Minimum Required Investment (or simply the MRI, which can be confusing) — it just means the down payment.

» MORE: FHA loan down payment details

Lenders pay attention to your debt-to-income ratio regardless of the type of mortgage you get, but the FHA actually looks at two different ratios.

The first is simply the ratio of your proposed monthly mortgage payments to your monthly income. The FHA calls this your Total Mortgage Payment to Effective Income Ratio, abbreviated as PTI for payment-to-income; you might also see this referred to as your front-end debt ratio. Your PTI can be as high as 40% if your credit score is at least 580.

The debt-to-income ratio, known as DTI, measures the percentage of your pretax income that you spend on monthly debt payments, including your mortgage or rent, credit cards, student loans and other obligations. You can use a debt-to-income ratio calculator to figure out where you stand.

As with PTI, the FHA's guidelines for DTI vary depending on your credit score and other aspects of your financial picture, like how much cash you have on hand. The highest DTI the FHA allows is 50%; that's if your credit score is at least 580 and you meet additional qualifications.

» MORE: How your debt-to-income ratio affects your mortgage

There is no minimum or maximum salary that will qualify you for or prevent you from getting an FHA-insured mortgage. However, you must:

• Have at least two established credit accounts. For example, a credit card and a car loan.

• Not have delinquent federal debt or judgments, tax-related or otherwise, or debt associated with past FHA-insured mortgages.

• Account for cash gifts that help with the down payment. That can include money from a friend or family member, a charity, your employer or union, or from a government agency. These gifts must be verified in writing, signed and dated by the donor.

If you are using a state or local assistance program to obtain an FHA loan, that program may have its own income limits and requirements.

» MORE: See how much house you can afford

The property must meet FHA loan limits, which vary by county. In 2022, that’s generally $420,680 for single-family homes in low-cost areas and $970,800 in high-cost areas.

» MORE: Tips for getting the best FHA mortgage rates

Here is some of the documentation you will need when applying for an FHA home loan:

• Valid government-issued ID, like a driver's license or passport.

• Proof of a Social Security number.

• Up to two years' worth of original pay stubs, W-2 forms or valid tax returns.

• Signed and dated letters that detail the source and amount of any gift funds and explicitly state that you don't need to pay back the money.

An FHA-approved lender will walk you through the details of other documentation you might have to provide.

» MORE: How to apply for a mortgage

In addition to borrower qualifications, the property must meet certain requirements before you can qualify for an FHA mortgage.

• The loan must be for a principal residence, and at least one borrower must occupy the property within 60 days of closing.

• The property can be a single-family home (either detached or part of a development like a condo or townhouse), a multifamily home with up to four units (so long as you occupy one) or a manufactured home that's on a permanent foundation.

• It can't be an investment property, with the exception of a multiunit dwelling where you live in one of the units.

• Unless you are using a 203(k) loan for renovation, it must pass an FHA appraisal, which ensures the home meets the FHA's minimum property standards.

• The property can’t be a house flip, meaning you can’t buy a home within 90 days of a prior sale.

• You must take title to the property in your own name or in the name of a living trust at settlement.

» MORE: What to know about buying a condo with an FHA loan

Lenders are willing to offer FHA loans because they know that in the worst case scenario, where they have to foreclose on a home, the FHA will pay them back. That's why you'll sometimes see the FHA described as insuring home loans.

That FHA backing is funded by you, the homeowner, via FHA mortgage insurance. You'll be required to make an upfront mortgage insurance premium equal to 1.75% of the loan amount at closing, though this can be rolled into the loan. After that, you'll make monthly mortgage insurance payments. If your down payment is 10% or more, you'll have to make these payments for 11 years.

But if you make a down payment of less than 10% on an FHA loan, the only way to get out of paying monthly FHA mortgage insurance is to refinance into a conventional loan. FHA mortgage insurance can't be canceled the way private mortgage insurance can. The amount of insurance you'll pay is calculated based on the length and total cost of your mortgage as well as the amount of your down payment.

» MORE: FHA closing costs

If you have previously lost a home to foreclosure, you'll have to wait three years before applying for an FHA loan. There are some exceptions, however, for circumstances like a serious illness.

Those who have experienced bankruptcy can also qualify for an FHA loan, though you'll have to demonstrate that you're now on better financial footing. Some allowances may be made on an individual basis, but in general, you'll need to wait two years after a Chapter 7 bankruptcy and at least a year after a Chapter 13 bankruptcy to apply for an FHA mortgage.

» MORE: What to know about bankruptcy

You don't need to be a first-time home buyer to get an FHA loan. FHA loans are often attractive to borrowers with lower credit scores or smaller down payments, since these loans typically have more relaxed qualification requirements than conventional mortgages. Credit challenges and saving up for a down payment can be big hurdles for first-time home buyers.

If you are a first-time home buyer, you might be able to combine an FHA loan with down payment or closing cost assistance from state first-time homebuyer programs. Since the FHA allows gift funds to cover those costs, one of these programs might help you more comfortably afford a home.

But anyone, even a repeat buyer or a homeowner looking to refinance a mortgage, can use an FHA loan as long as they meet the eligibility requirements.

» MORE: Comparing FHA vs. conventional loans

Frequently asked questions

What disqualifies a house from FHA?

The FHA sets "minimum property standards" for livability that any single-family home, condo, townhouse or manufactured home must meet. These are checked during the FHA appraisal, which assesses whether a home is eligible for an FHA loan. If issues are uncovered, they must be repaired for the loan to close.

How much money do you have to make to qualify for a FHA loan?

The FHA doesn't set a minimum income to qualify for a loan, but it does have guidelines for debt-to-income ratio. In other words, you'll need to make enough money to cover the costs of your existing debts as well as the new mortgage.

How do you apply for an FHA loan?

You apply for an FHA loan with an FHA-approved lender; the Federal Housing Administration isn't directly involved. The process is fairly similar to applying for a non-FHA loan, and depending on the lender, you can kick it off by exploring a mortgage preapproval online or by talking with a loan officer.

What disqualifies a house from FHA?

The FHA sets "minimum property standards" for livability that any single-family home, condo, townhouse or manufactured home must meet. These are checked during the

FHA appraisal

, which assesses whether a home is eligible for an FHA loan. If issues are uncovered, they must be repaired for the loan to close.

How much money do you have to make to qualify for a FHA loan?

The FHA doesn't set a minimum income to qualify for a loan, but it does have guidelines for 

debt-to-income ratio

. In other words, you'll need to make enough money to cover the costs of your existing debts as well as the new mortgage.

How do you apply for an FHA loan?

You apply for an FHA loan with an

FHA-approved lender

; the Federal Housing Administration isn't directly involved. The process is fairly similar to applying for a non-FHA loan, and depending on the lender, you can kick it off by exploring a mortgage preapproval online or by talking with a loan officer.