Who can qualify for an FHA loan? Who is eligible for this program?
This one of the most frequently asked questions we receive from our visitors and readers. So we created this brief article to answer the common question: Who qualifies for an FHA home loan?
Who Can Qualify for an FHA Loan
The short answer is that just about anyone can qualify for an FHA-insured mortgage, as long as they meet a few basic requirements. Despite popular opinion, this program is not limited to first-time buyers. It is open to a wide variety of borrowers, including those who have owned homes before.
The minimum requirements for an FHA loan are somewhat flexible:
- Borrowers need a credit score of 580 or higher to qualify for the program and enjoy the low 3.5% down payment.
- Borrowers must have sufficient income to manage their monthly payments and all other recurring debts.
- Borrowers should have a manageable level of debt, as determined by the debt-to-income ratio and other factors.
That gives you some sense of who can qualify for an FHA loan. If you meet the basic requirements outlined above, you might be a great candidate for this government-backed mortgage program.
Here’s Who Qualifies for the Program
Let’s take a closer look at who qualifies for this program:
- First-time home buyers can qualify for an FHA loan. In fact, first-time buyers make up the majority of applicants who use this program. It’s a popular financing method among this group, partly due to the 3.5% down payment.
- Repeat home buyers can also qualify for an FHA loan. You don’t have to be a first-timer. People who have owned homes in the past are welcome to apply for an FHA loan, as long as they meet the minimum requirements mentioned listed above.
- Non-U.S. citizens can qualify for an FHA loan. There is a common misconception that you have to be a U.S. citizen to qualify for this program, since it’s a federally insured mortgage. But that’s not accurate. A non-U.S. citizen can qualify for an FHA loan as long as they can document their residency status. “Permanent resident aliens” are welcome to apply for the program. As it states in the official FHA handbook: “U.S. citizenship is not required for mortgage eligibility.”
- Home buyers with less-than-perfect credit scores can sometimes qualify for an FHA loan, if they have a score of at least 580. This program is particularly popular among people with credit problems in the past who might not qualify for a conventional mortgage loan.
- People with limited funds for a down payment can qualify for an FHA loan. As mentioned above, the minimum required investment for this program is 3.5% of the purchase price or appraised value. Additionally, FHA borrowers can use gift money provided by a third-party to cover some or all of their down payment expense.
- People with relatively high incomes can qualify for an FHA loan. While this program was originally designed for borrowers with low to moderate income, it’s not limited to that group. There is no rule or requirement that says you have to be a lower-income borrower.
- People who want to buy and renovate a home can qualify for an FHA loan. In fact, the Department of Housing and Urban Development offers a special product designed for these people. It’s called the FHA 203(k) rehab mortgage. It allows eligible home buyers to purchase and renovate a property with a single loan.
- In most states, home buyers 18 and over can qualify for an FHA loan. This program is open to anyone who meets the minimum age requirement for a mortgage in the state where they reside. In most states, the minimum age is 18.
- Black, white, Asian, Middle Eastern, Latinx, elderly, and LGBTQ home buyers can qualify for an FHA loan. Mortgage lenders are not allowed to discriminate based on age, race, ethnicity, etc. That violates fair lending laws (in addition to mention common decency).
Note: This list is not exhaustive. Our purpose here is to show that many different types of borrowers can qualify for the FHA mortgage insurance program.
Insurance Makes it All Possible
As you can see, there is a broad group of people who can qualify for an FHA loan to buy a house. This program is open to all types of home buyers, including first-time and repeat buyers like. It’s open to young and old borrowers, U.S. citizens and non-citizens, and even those who might not be able to qualify for a regular or conventional mortgage.
The reason this program is open to so many different types of borrowers has to do with insurance. This whole program is built around an insurance structure. The Federal Housing Administration insures the mortgage loans made by lenders and banks within the private sector.
As it states on the Department of Housing and Urban Development website:
“FHA mortgage insurance provides lenders with protection against losses if a property owner defaults on their mortgage. The lenders bear less risk because FHA will pay a claim to the lender for the unpaid principal balance of a defaulted mortgage.”
This insurance gives lenders an added layer of protection from financial losses stemming from borrower default (or failure to repay). As a result of this insurance, people who might not qualify for a conventional mortgage due to credit issues can often get approved for an FHA loan.
Where to Learn More
Most of the information contained in this article comes from HUD Handbook 4000.1, also known as the Single-Family Housing Policy Handbook. This 1,000+ page guide is the official set of rules and requirements for the FHA loan program.
There is an entire section of this handbook dedicated to eligibility. It explains who can qualify for an FHA loan, as well as other important aspects of this program. You can refer to that handbook to learn more.
You could also direct your questions to the Federal Housing Administration’s resource center. They have a special “hotline” and email address set up for this purpose:
- Telephone: (800) CALL-FHA (225-5342)
- Email: firstname.lastname@example.org
- FAQ website: www.hud.gov/answers
Disclaimer: This article is not meant to be exhaustive or all-inclusive. We have outlined some of the basic requirements for the FHA loan program, including who qualifies for it. But for the sake of brevity, we have not included every possible type of home buyer / borrower.