FHA Loan Requirements for 2022: Updated Information for Borrowers

  • Some FHA loan requirements have been revised for 2022.
  • These changes were announced in late October of 2021.
  • Here, we have summarized the basic FHA loan requirements for 2022.

On October 26, the Federal Housing Administration sent out an email to announce some updates to the Single Family Housing Policy Handbook. Also known as “HUD Handbook 4000.1,” this is the official set of guidelines and requirements for FHA-insured home loans.

According to their announcement: “The updates include enhancements and revisions to existing guidance as well as various other technical edits. This newly added language augments and enhances existing policy.”

Most of the changes will apply to FHA loans with case numbers assigned on or after January 24, 2022.

In response to this announcement (and since we’re approaching the end of 2021), we thought it would be helpful to share some of the basic FHA loan requirements for 2022.

FHA Loan Requirements for 2022

We took a deep dive into the official policy handbook to see what new requirements or guidelines are heading our way. Here’s the short version: From a borrower’s standpoint, there really isn’t anything new or earth-shattering in this handbook update. Most of the changes have to do with reporting, verification, and other topics relevant to lenders.

Note: This article provides a basic overview of the FHA loan requirements for 2022 and is intended for home buyers and borrowers. Mortgage lenders should refer to the email announcement (FHA INFO #21-90) and the 4000.1 handbook for more details.

Here are some of the basic (but most important) requirements for FHA loans in 2022:

Application

Anyone who uses an FHA-insured home loan to buy a house must complete a standard application form. The full name of this document is the Uniform Residential Loan Application.

As it states in the revised handbook:

“The Mortgagee [lender] must obtain a completed Fannie Mae Form 1003/Freddie Mac Form 65, Uniform Residential Loan Application (URLA) from the Borrower and provide all required federal and state disclosures in order to begin the origination process.”

This requirement is not unique to FHA loans, however. Nearly all mortgage products require the URLA form.

Appraisal

Home appraisals are another important requirement for FHA loans in 2022. The purpose of the appraisal is twofold: (1) to determine the value of the property, and (2) to ensure it meets the minimum property standards for the FHA program.

Generally speaking, the appraisal is valid for 120 days when an FHA loan is being used. But 30-day extensions are a common occurrence.

Cash to Close

“Cash to close” is another FHA loan requirement for 2022. This term refers to money the borrower has on hand (or in the bank) to put toward the closing costs and down payment. Mortgage lenders are required to document the cash to close, in keeping with FHA loan requirements.

As it states in HUD Handbook 4000.1:

“The Mortgagee must verify and document that the Borrower has sufficient funds from an acceptable source to facilitate the closing.”

To verify that the borrower has sufficient cash to close, mortgage lenders typically look at bank statements and other forms of documentation. Borrowers commonly bring a cashier’s check to closing, to pay their costs.

Credit Score

In order to use an FHA loan, borrowers must have a credit score of 500 or higher. You’ll need a 580 or higher to take advantage of the 3.5% down payment offered through this program.

Credit scores are one of the key requirements for an FHA loan in 2022. But the rules have been the same for several years now, and no changes have been announced. According to the latest edition of the policy handbook, the 500 / 580 requirement mentioned above remains in effect.

Here again are the numbers to bear in mind:

  • Borrowers with a credit score at or above 580 are eligible for maximum financing (96.5%)
  • Borrowers with a credit score between 500 and 579 are limited to a maximum LTV of 90%.

Documents

The official FHA loan requirements for 2022 also call for certain documents to be submitted. Borrowers must provide these documents as part of the application, underwriting and approval process.

At a minimum, lenders tend to request pay stubs, W-2 forms, and bank statements. They may also obtain the borrower’s tax returns directly from the IRS.

Down Payment

From a borrower’s perspective, the down payment is one of the most important (and sometimes challenging) FHA loan requirements.

In 2022, the “minimum required investment” or down payment for an FHA-insured home loan will remain the same as in previous years. According to the policy handbook, borrowers must put down at least “3.5 percent of the Adjusted Value of the Property.”

That means you can finance up to 96.5% of the purchase, as long as you meet the credit score requirements mentioned earlier.

Income

The handbook also explains the income-related requirements for an FHA loan in 2022. In short, borrowers must have sufficient income to manage their monthly payments and other debt obligations.

Mortgage lenders are required to:

  • document the borrower’s income and employment history,
  • verify the accuracy of the amounts of income being reported,
  • and determine if the income can be considered as Effective Income.

Mortgage lenders typically rely on official tax records when documenting a borrower’s income level, though other documents may be used as well.

Loan-to-Value (LTV)

As mentioned earlier, in the “down payment” section, borrowers who use the FHA program to buy a house can have a loan-to-value (LTV) ratio up to 96.5%. That’s the maximum LTV requirement for 2022.

There are other LTV limits that apply to refinancing, construction, etc. But for home buyers, the limit is set at 96.5%.

Maximum Mortgage Amounts

FHA loan requirements for 2022 also limit borrowers to a certain mortgage amount. These are commonly referred to as “loan limits,” a term you’ll probably hear again. According to the Federal Housing Administration, a home loan that is “insured by FHA cannot exceed the Nationwide Mortgage Limits.”

In 2021, the FHA loan limits for a single-family home range from $356,362 to $822,375, depending on the county where the property is located. But these caps might be increased for 2022, due to significant home-price appreciation nationwide. HUD usually announces loan limit changes in December, for the year following. So we’ll know more soon.

Mortgage Insurance

Borrowers who use the FHA loan program have to pay for mortgage insurance. While this insurance is paid for by the borrower, it actually protects the lender from potential financial losses related to default.

There are two insurance premiums. FHA collects a one-time Upfront Mortgage Insurance Premium (UFMIP) and an annual premium. The UFMIP amounts to 1.75% of the base loan amount. The annual premium varies based on the loan amount and term, but for most borrowers it comes to 0.85%.

Disclaimer: This articles provides a basic overview of FHA loan requirements for 2022. All of the guidelines and requirements covered above were taken from HUD Handbook 4000.1, also known as the Single Family Housing Policy Handbook. This article is not meant to be an official or exhaustive list of FHA loan guidelines, but rather a general overview intended for home buyers. If you have questions about this mortgage program, please direct them to the FHA Resource Center or a HUD-approved mortgage lender.