Am I Eligible for FHA Loan?

Table of contents

Buying a home is stressful, especially when you’re trying to buy a home when money is tight. When life hands you lemons, it can be hard to secure conventional home loans from banks, credit unions, or other lending institutions due to one factor or another. Thankfully, there is another option.

The Federal Housing Administration (FHA) offers loans for those with lower credit scores, first-time homebuyers, low- to moderate-income buyers, and many other situations that may apply to you.

An FHA loan is a mortgage loan backed and insured by the FHA and issued by an FHA- approved lender. These loans often require less of a down payment as well.

We discuss how FHA loans work, along with how they differ from conventional loans. There are also various types of FHA loans that we describe as well, along with general eligibility requirements. If you are interested in learning more or think that an FHA loan is right for you, be sure to contact an FHA-approved lender.

Key takeaways

  • FHA loans are backed and insured by the Federal Housing Administration.
  • Designed for low-income borrowers with lower credit scores and small down payments.
  • Require mortgage insurance with upfront and annual premiums.
  • Different types of FHA loans, including fixed and adjustable-rate mortgages, and specific programs like the HECM and FHA 203(K) Improvement Loan.
  • Lower requirements than conventional loans, but eligibility requirements must be met.

How does an FHA loan work?

An FHA loan works similarly to a conventional loan — you borrow money to pay for a house with the agreement to pay it back with interest. However, there is one catch: borrowers have to purchase FHA mortgage insurance. This protects the lenders if you default on the loan and cannot pay it back.

And who pays for the mortgage insurance? You do. But it is not as daunting as it seems. Under all FHA loans, you are required to pay two different premiums: an upfront mortgage premium and an annual mortgage premium. 

An Upfront Mortgage Insurance Premium is around 1.75% of the amount for the loan, which you pay when you receive the loan. Often, this premium gets included in the financed loan amount, so you do not have to worry about having that money saved already.

The Annual Mortgage Insurance Premium varies in percentage of the loan amount, depending on the term, amount, and the loan-to-value (LTV) ratio of the loan you are looking to get. It is paid monthly.

These FHA mortgage insurance premiums may be canceled after 11 years if you finance around 90 percent or less of the property value and are current with all your payments. If your loan has a high loan-to-value (LTV) ratio, as in more than 90 percent, you will have to carry the insurance until the loan is fully paid off.

FHA loan vs. Conventional Loan

FHA loans vs. conventional loans

Conventional loans require more from you as the buyer in terms of a down payment and line of credit. You may even have already experienced a denial for a conventional loan based on these factors. And if you are just getting started but are not sure if your credit score is good enough, here is a breakdown of the differences between FHA mortgage loans and conventional loans.

Requirements FHA Loans Conventional Loans
Credit Score (minimum)
Down Payment
If your credit score is between 500 to 579: 10% If your credit score is 580 or higher: as low as 3.5%
Between 3% and 20% to qualify
Down Payment Assistance Available

As illustrated in the table, there is often less required for you to put up front in terms of an FHA loan versus what you have to pay for a conventional loan. There are more requirements that go into an FHA loan to qualify than just credit score and down payment, and we will discuss them below.

Different types of FHA loans

There are a variety of FHA loans that are available to you if you qualify. Each has unique pros and cons that are involved, and some have more requirements than others. There are two types of interest rates available for you to choose from: fixed or adjustable.

The fixed-rate mortgage means that the interest rate is a flat rate throughout the duration of the loan. It never changes.

There is also an adjustable-rate mortgage (ARM) that changes periodically over time, potentially even giving you a lower interest rate at times. Often, the FHA has a hybrid version between the two where a set time at the beginning of the loan is fixed-rate, with the remainder being adjustable.

There are several types of FHA loans you can explore. If you have any questions about the different types, be sure to talk to an FHA-approved lender to find what options are the best for you.

Home Equity Conversion Mortgage (HECM)

A Home Equity Conversion Mortgage (HECM) is one of the most popular types of a reverse mortgage. This type of FHA loan is applicable only to seniors age 62 and up. It works by allowing you to convert your home’s equity into cash while keeping the title to your home. You can get these funds either through a fixed monthly stipend or as a line of credit. You can also do a combination of both the fixed monthly payments and lines of credit.

Section 245(a) loan

The Section 245(a) Loan is a type of FHA loan designed for borrowers who expect their income to increase. If you are this type of borrower, this program is a graduated type of payment as your income increases. The Graduated Payment Mortgage starts lower with monthly payments, and it gradually increases over time. The Growing Equity Mortgage has scheduled increases in payments that reduce the term of the loan.

FHA 203(K) improvement loan

This type of FHA loan factors in both the cost of the home and the renovations and repairs needed. The FHA 203(k) Improvement Loan rolls both the price of the home and the cost of improvement into one loan. This can help you if you do not have a lot of spare cash to help fix the house after the down payment.

FHA Energy efficient mortgage

The idea behind an FHA Energy-Efficient Mortgage loan is that it upgrades to increase your home’s energy efficiency to lower utility bills–which means you have more money at the end of the month to pay for mortgage payments. This loan is similar to the FHA 203(k) Improvement Loan, but instead for maintenance and repairs, it is to renovate your home to be more energy-efficient. This includes adding solar panels, wind energy, or even new insulation

Requirements for FHA loan

Am I eligible for an FHA loan?

Contrary to popular belief, FHA loans are not restricted to first-time buyers or low-income households. You can be a repeat home buyer if you meet other requirements, in addition to the general guidelines. Moderate-income households can also qualify for FHA loans. However, there are some general requirements. It should be noted that if you are delinquent on your federal student loans or federal income taxes, you will not qualify, even if you meet all other requirements.

1. Verifiable income

To be considered for an FHA loan, you have to have a verifiable employment history for the previous two years and a verifiable income. It can be done through pay stubs, tax returns, and bank statements.

2. Payment of existing debt

Another requirement is that your income-to-debt ratios allow you to pay the monthly payments and keep consistent on all your other debts. Your “front-end debt ratio” is the monthly mortgage payment for the loan and cannot exceed 31% of your gross monthly income. Your “back-end debt ratio” is the mortgage and all other debt payments (car loans, student loans, etc.) and cannot exceed 43 percent of your gross monthly income.

3. Appraisal

The property also needs an appraisal conducted by an FHA-approved appraiser. This is to ensure the cost of the house, along with the property, meets certain minimum requirements.

4. Good credit history

Just because you may not have good credit now does not mean that you always had or will have bad credit. This is especially true for first-time homebuyers who may not have much credit to begin with but are good to make their payments. Essentially, you need to be able to demonstrate a history of being able to pay things back. This can be from rent payments to utility bills, or other loans. You also have to demonstrate that you are working towards establishing good credit.

5. Down payment

To qualify, you have to have money ready for a down payment. The amount you need depends on your credit score, and you can reference the table earlier for the down payment percentage for your credit range.

6. FICO score of at least 500

Your FICO credit score must be at least 500. But the higher your credit score, the lower percentage of a loan you need to be saved up for a down payment.

7. Primary residence and FHA loan limits

The house must be your primary residence and cannot exceed more than the FHA loan limit for that particular unit type. These limits are determined by the region in which you live, with a special exception to the areas of Alaska, Hawaii, Guam, and the U.S. Virgin Islands.

8. Bankruptcy and mortgage foreclosures

At least two years must have passed if you experienced a bankruptcy event. Some special considerations can be made if you can demonstrate the bankruptcy was due to an uncontrollable circumstance. You must also be three years removed (at least) from mortgage foreclosures.

Final thoughts

When it comes to finding the right home, it can also mean finding the right loan. And when getting a conventional loan from a bank or another lending institution is not an option, it can be difficult. FHA loans are designed to help those who do not qualify or cannot get a conventional loan if they meet certain basic requirements. There are five types of FHA loans, and if you are interested in seeing if you are the right fit, reach out to an FHA-approved lender to get started.

Not sure where to start? Make Hero Home Programs™ your first call. Our specialists will help you along the home buying journey. We have helped thousands of people and look forward to serving you.

Picture of Jacquelyn Sublett
Jacquelyn Sublett

I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™

Connect with the Author:

Recommended Posts

What Our Buyers Think

Jules S.
Read More
"5 star service is what you will get when you work with him!ᅠ Not only does he know his product like no other, he makes a special point of communicating throughout each transaction and his follow up skills are unparalleled. Perhaps most importantly, he delivers on his promises!ᅠ Give him a try for your mortgage needs.ᅠ You will not be disappointed!"
Jeremy H.
Read More
"An outstanding job handling refinances.  One of those knowledgeable, straight-shooters - which is really appreciated when you're shopping for a home loan. He can answer a million of questions with ease.  Looking back at the responsiveness, he was outstanding and you can do everything he suggested."
Jaina D.
Read More
"You can rely on them, very professional and quick in responding to your queries. He is very friendly and makes sure we understand the process and keeps us posted on the status of our loan. His efforts are greatly appreciated."
Eshawn W.
Read More
“By far the best lender we’ve worked with. Got us the best loan amount than any other lender. He worked with us hand in hand, he is professional, and he made the process enjoyable.”
Jaina D.
Read More
"You can rely on them, very professional and quick in responding to your queries. He is very friendly and makes sure we understand the process and keeps us posted on the status of our loan. His efforts are greatly appreciated."
Cass Z.
Read More
“I called looking for information about the process of applying for a mortgage/refinance and am just blown away with how helpful the information I received was!”
Stephanie F.
Read More
“I have hope because of you for making my home ownership dream come true. I feel such a connection with you and am excited to work with you. Have an amazing day!”
Rachel S.
Read More
"Highly ethical, attentive and helpful! A fantastic combination of personable and hard working. He makes everyone feel important and understood."
Cliff S.
Read More
“Hands down the best mortgage professional I’ve worked with in 20 years. Knowledgeable, honest, reliable and above all an outstanding communicator.”
Jose A.
Read More
"He worked on getting the lowest rate and kept me informed on each step of the process from the beginning to closing. Thank You!"
Nicholas H.
Read More
“Thank you for your prompt help and AMAZING assistance. Hands down, best lender I have ever worked with. Top notch!”
Read More
“I would be 100% interested in working more with you! You have proven to be an amazing lender”
Sandy C.
Read More
“Absolutely the most knowledgeable, friendly and honest expert I’ve ever worked with!”
Steve R.
Read More
"A pleasure to work with. He was very prompt and courteous with his responses and genuinely cares about the clients he works with."
Kevin H.
Read More
"Professional, responsive and honest assistance with the whole refinancing process from beginning to end."

We help you reach home ownership.

No catch. No hidden fees.

Have you served in the military or your community as a healthcare provider, teacher, or first responder? Are you a member of your local union or work for your city government?

Are you looking to buy a home but don’t know where to start when it comes to finding your best home financing options?

At Hero Home Programs™, our teams are dedicated to helping community heroes like you through the home purchasing process by finding the best grants, rebates, and loans in your area in order to maximize your savings and help you achieve homeownership.

Contact our team today to learn how we can and mortgages can change your life.

Resource Guides

Complete A to Z guides on your home purchase journey.

Learn about the process for getting a home loan

What steps you can take to improve your credit score

Tips and tricks for moving into your new home

Your step-by-step guide for buying a new home

Scroll to Top