Thinking about buying your first home in 2025? An FHA loan could be a perfect fit! Known for their flexible requirements, low down payments, and low interest rates, FHA loans are a go-to option for first-time buyers. But who qualifies, and what does it take to get started? Let’s break it down to see if this program is right for you.
What are the requirements for an FHA loan?
To qualify for an FHA loan, you’ll need to meet a few key requirements. Here’s what FHA lenders typically look for:
2025 FHA Loan Requirements
| Credit Score | 500 (with 10% down) or 580+ (with 3.5% down) |
|---|---|
| Down Payment | At least 3.5% of the purchase price if your credit score is 580+ 10% if your credit score is between 500–579 |
| Loan Limits | The standard FHA loan limit is $524,225 in 2025, but limits vary by location. |
| DTI Ratio | Typically, no more than 43% but can be flexible depending on your lender |
| Mortgage Insurance | Upfront (1.75% of the loan amount) and annual fee (between 0.15% and 0.75%) required |
| Property Types | Primary residences only but can be used to fund new construction, mobile homes, and renovations |
| Income Requirements | Proof of stable, consistent income, typically looking for at least two years at the same job |
| Appraisal Requirements | Require an appraisal, but fees vary by location, typically ranging between $300 and $600 |
Credit Score & Down Payment
FHA loan credit score minimums and down payments are linked. You need a minimum of 500 to qualify with a 10% down payment or a 580+ credit score with a 3.5% down payment. However, since the Federal Association of Housing (FHA) does not lend the money, lenders set their own credit limits.
Paddio’s minimum credit score for an FHA loan is currently 620+.
Debt-to-Income (DTI) Ratio
The US Department of Housing and Urban Development (HUD) does not set a firm DTI ratio, so it varies by lender. Most lenders require a DTI ratio of 43% or less, though some may accept higher ratios with compensating factors.
Compensating factors are positive financial or personal circumstances that help offset potential risks in a borrower’s loan application. For example, a higher-than-average savings balance, a history of making on-time rent payments, or a strong job history might allow lenders to approve an FHA loan even if the borrower has a higher debt-to-income (DTI) ratio or lower credit score.
Loan Limits
FHA loans have maximum loan limits that vary by location where you are trying to buy a home.
Loan limits restrict how much you can spend on a home before it turns into a jumbo loan. FHA loan limits typically update each year. In 2025, the standard FHA loan limit in most areas is $524,225.
Mortgage Insurance Premium (MIP)
FHA loans require an upfront MIP (1.75% of the loan amount) and an annual MIP added to your monthly mortgage cost.
Your annual MIP rate depends on your loan amount, loan-to-value (LTV) ratio, and mortgage term. The average annual FHA MIP is 0.55% of the total loan amount.
Proof of Income
You’ll need to show stable, consistent income. Lenders typically look for at least two years of steady employment or income history, but there can be exceptions.
Property Types
FHA loans are designed specifically for primary residences, meaning they can’t be used to purchase vacation homes or investment properties—unless you plan to live in the home as your primary residence. For example, you can use an FHA loan to buy a multi-family property, such as a duplex or triplex, and live in one unit while renting out the others.
Additionally, FHA loans offer flexibility for various property types and purposes. They can be used to refinance or renovate existing homes, purchase new construction homes, make energy-efficient upgrades, or even buy mobile or manufactured homes.
FHA Appraisal
The property must pass an FHA appraisal. Unlike a standard home appraisal, which focuses primarily on determining the property's market value, an FHA appraisal also checks that the home meets specific health and safety guidelines. If the home doesn’t meet these standards, repairs may need to be completed before the loan can be approved. Additionally, the appraiser will confirm the home's value aligns with the purchase price, protecting the borrower from overpaying.
How to Qualify For an FHA Loan
While the U.S. Federal Housing Administration insures FHA loans, the US government doesn’t actually issue them. Instead, you’ll apply for your loan through an FHA-approved lender.
Since the government protects the lender in the case of borrower default, it’s often easier to qualify for an FHA loan than a conventional loan. Although the requirements are more lenient, the lender still reviews basic information to determine your FHA loan eligibility. This includes your credit score, debt-to-income (DTI) ratio, and employment and income verification.
During the verification process, you’ll need to provide your lender with documentation, including:
- A valid government-issued ID (like a passport or U.S. driver’s license)
- Up to two years of W-2 forms, pay stubs, or tax returns, as well as employment verification
Some lenders may want to see you have at least two established credit accounts, such as an auto loan and a credit card. You’ll also need to show the lender that you’re not delinquent on any taxes, federal debts or judgments, or debt related to past FHA-insured mortgages.
Your chosen FHA lender may also ask for additional documentation. They will inform you of this as you go through the underwriting process.
Common FHA Loan Disqualifiers
Despite the lenient FHA loan requirements, being denied is possible. The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments, or closing costs.
1. High Debt Levels
Too much debt can be a problem when applying for an FHA loan. Most FHA lenders prefer a DTI of 43% or less. However, with certain compensating factors, lenders may accept a ratio as high as 57%.
You may be able to lower your DTI ratio by paying off some of your high-interest debt or by extending the duration of your loans, which would lower your monthly payments. You may also try lowering the interest rates on your outstanding debts or looking into loan forgiveness programs.
2. Poor Credit
Another issue that can lead to an FHA loan application denial is a low credit score. While the government recommends a minimum 500 credit score for FHA loan applicants, lenders aren’t required to follow this suggestion, meaning lenders can deny you even with a score of 600 or more. If this happens, you may want to try working with a different FHA lender or taking steps to raise your credit score before applying again.
It’s also important to note that having a credit score below 580 requires more cash on hand to meet the increased down payment requirements, which could cause you to have insufficient funds to purchase the home. Remember, many lenders look for credit scores well above 580 and may not offer FHA loans to borrowers with poor credit.
3. Insufficient Funds
Before approving an FHA loan, the lender will want to confirm that you have enough money to make the required down payment and pay all the closing costs. You’ll need to provide bank statements showing you have the cash on hand.
If you do not have enough savings, you may want to seek out a gift from a loved one to help with the down payment or simply wait until you have saved enough cash to meet the minimum requirements.
4. Too Recent After Bankruptcy or Foreclosure
FHA loans offer more forgiving guidelines than conventional loans for borrowers who have faced bankruptcy or foreclosure; however, there are still seasoning periods. After a Chapter 7 bankruptcy, you may qualify for an FHA loan as soon as two years after discharge, provided you’ve re-established good credit. For a foreclosure, the waiting period is typically three years from the date of foreclosure.
In both cases, you must show financial stability and meet other FHA requirements.
Is an FHA loan right for you?
If you’re having difficulty applying for a conventional loan or you want to save the money you’d use on a higher down payment, then an FHA loan could be a good choice.
You can learn more about FHA loan pros and cons here.
Make sure to talk to an FHA lender before beginning your home search. This way, you can confirm your eligibility before falling in love with your dream home.
