What You Should Know About FHA Loan Requirements for 2022
Are you considering getting an FHA (Federal Housing Administration) loan?
The requirements can change slightly from year to year, so you must ensure you have the most recent and accurate information.
You need to know what credit score minimum you need to qualify and how your debts can impact the loan. We’ll cover all of the necessary details in this article, so make sure to keep reading!
FHA Loan Minimum Required Credit Score
Before you apply, you need to know if you can meet the minimum required credit score. These loans have government backing, so they don’t have as high of a credit score requirement as other housing loans. However, you should still always check first.
The FHA minimum credit score limit is 500, meaning they won’t consider you for the loan if you have a lower score. You may be able to boost your credit score some before applying. You’ll also get better deals with a higher score, so make sure to spend some time raising it if you can.
However, you might need higher credit with specific FHA lenders. The lenders that work through the FHA may try to lower their risk by only taking higher credit scores. That’s why you must review the different FHA loans available— you might find one that requires a lower credit score and comes with better rates.
You’ll miss out if you don’t shop around, so don’t settle for the first option you find!
FHA Loan Debt-To-Income Ratio Maximum
Next, you must understand the FHA’s requirements that have to do with debt. Most people have some debt today, and lenders want to know how much you owe to others before they send you an offer. These lenders have specific DTIs (debt-to-income) ratios that they won’t accept.
For FHA loans, you can’t have a DTI above 50%. That means less than 50% of your pretax income goes to other debts. These can include student loans, personal loans, and credit cards, among many others.
According to Investopedia, most other lenders prefer those with a DTI ratio lower than 36%. So, you have a bit more room with an FHA loan for higher DTIs.
How To Determine Your DTI
As long as you know your monthly debts, it shouldn’t be challenging to figure out your DTI. You’ll want to know what it is before you apply for an FHA loan, so here’s what you can do.
- Add up all of your monthly bills. (Rent, student loans, car payments, credit card bills, etc.)
- Divide the sum of those monthly debts by your gross monthly income, which you make before taxes come out.
- This final number is your DTI. You can convert it to a percentage by multiplying the decimal value by 100.
Let’s work through a quick example together. Say you make $5,000 monthly and have debts from a few different sources.
- $250 a month for student loans + $500 a month car payment + $1,000 monthly rent + $110 monthly credit card bill = $1,860 in monthly bills.
- $1,860 ÷ $5,000 = 0.372
- 0.372 x 100 = 37.2%
So, in this example, your DTI ratio would be 37.2%. You’ll want to calculate your own to determine if you can qualify for the FHA loan. Currently, you need to be under 50% DTI for lenders to consider you.
FHA Loan Required Minimum Down Payment
You’ll also want to know more about the minimum down payment requirements in 2022. Currently, the FHA requires down payments of at least 3.5% of the loan when you have a credit score of 580 or higher.
If you score 500 to 579, you’ll need to pay more for the down payment, which is why it’s a good idea to increase your score whenever possible. This year, the FHA minimum down payment for credit scores that fall in that range is 10%.
The differences in those two percentages are very significant. If you’re trying to buy a house worth $60,000, you’d need $2,100 if you had a score above 580. However, you’d need $6,000 with a lower score for the same home. That’s a huge price difference!
Is There A Loan Limit?
Like other housing loans, there is a limit to how much funding you can get through the FHA.
However, these limits can vary greatly depending on where the home you want to buy is. You can look up this information on the U.S. Department of Housing and Urban Development’s FHA Mortgage Limits page.
According to Lending Tree, you can expect a $420,680 limit for homes in a low-cost area, while high-cost areas have limitations of $970.800. Still, you should check your area’s exact limit to ensure.
Other FHA Loan Requirements
You’ll need to consider your income before applying for an FHA loan. While the FHA doesn’t set a yearly income requirement to qualify for a loan, you do need to make enough to have a debt ratio above 50%.
Additionally, you need to have at least two open credit accounts. For instance, you could have a credit card and a student loan. You also can’t have any delinquent debts.
It’s worth mentioning that lenders also consider your DTI combined with your credit score and down payment. A high credit score and large down payment mean lenders are more likely to consider you, even if you have 50% DTI. So, you’ll want to view these different requirements as a part of the larger picture when applying for an FHA loan.
Reach Out Today
You can qualify for an FHA loan this year if you meet these requirements. You’ll want to contact the FHA as soon as possible, so you can start researching your loan options. That way, you know you’ll get the best deal for your unique circumstances.
You’ll need a credit score of at least 500, although having a higher one is more beneficial. Then, you’ll want to make sure your DTI is under 50%. It only takes a few minutes to find this information, so you should do so before you apply.
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