FHA Loan Requirements for 2018: An Update for Borrowers

We’ve been receiving a lot of questions about FHA loan requirements for 2018. Many of our readers want to know if the minimum requirements for an FHA loan are going to change in 2018.

Here’s the short answer. We do not expect to see any major changes to the basic FHA loan requirements for borrowers in 2018. At least, nothing major has been announced by HUD.

We might see an increase in loan limits for this program, since federal housing officials have already raised the limits for conforming and VA loans. But that’s actually good news for borrowers.

Minimum FHA Loan Requirements for 2018

Here’s an updated look at down payments, credit scores, debt and income, and other important requirements for borrowers in 2018:

Down paymentsThe minimum required investment for an FHA home loan is 3.5% of the purchase price or appraised value, whichever is less. That has been the minimum requirement for the last several years. We expected it to remain the same throughout 2018, since HUD has not even hinted at changing it any time soon.

Credit scores: The absolute minimum credit score needed to qualify for an FHA loan in 2018 is 500. But to take advantage of the 3.5% down payment mentioned above, borrowers will need a “minimum decision credit score” of 580 or higher. Also bear in mind that mortgage lenders can set their own standards on top of the minimum FHA loan requirements established by HUD. So some lenders might want to see a higher score.

Debt and income: According to the latest version of the Single Family Housing Policy Handbook, borrowers who use an FHA loan should have a total deb-to-income ratio no higher than 43%. But that’s just a general rule, for which there are several exceptions. For instance, mortgage lenders can allow higher debt ratios for borrowers who meet certain conditions known as “compensating factors.” We’ve covered some of these compensating factors in a separate article (see link above). In some cases, the borrower’s total debt-to-income ratio can be as high as 50%.

Property requirements: Many different types of homes qualify for FHA-insured financing. This includes regular detached homes, townhouses, and condominium units. There are specific FHA loan requirements for the property that’s being purchased. Most of these requirements have to do with the health and safety of the future occupant (i.e., the home buyer). Follow the link above for an overview of minimum property standards.

Home appraisals: This is another important FHA loan requirement for 2018. Every home that is purchased through the FHA mortgage program must be appraised by a licensed home appraiser. The appraiser will review the house to ensure that it meets the minimum property requirements mentioned above. He or she will also determine the current market value of the property, based on recent and comparable sales in the area.

Condo requirements: If you’re planning to buy a condo unit with an FHA-insured loan in 2018, you’ll need to make sure it’s on HUD’s list of approved condominium projects. (You can find this searchable database on the HUD website with a quick Google search.) According to the Department’s website: “The condominium project must be primarily residential, contain at least two dwelling units and can be detached, semi-detached, a row house, a walk-up, mid-rise, high-rise, including those with or without an elevator, or manufactured housing.”

Disclaimers: This is just a basic overview of the minimum FHA loan requirements in 2018, based on HUD Handbook 4000.1. For the sake of simplicity, it does not cover all of the requirements for this program. We are independent publishers not affiliated with the Federal Housing Administration or any other government agency. This article is not an official document. To learn more about this program, refer to the HUD website or speak to a HUD-approved mortgage lender.