FHA Loan Requirements
FHA loans have specific eligibility rules around credit, down payment, occupancy, and borrower status that help more people qualify for home financing. Understanding these requirements upfront makes the process smoother.
Credit Score and Down Payment Guidelines
FHA financing uses a minimum decision credit score to determine the maximum loan-to-value ratio. Borrowers with scores at or above 580 qualify for the maximum financing amount, which requires a 3.5 percent down payment. Scores between 500 and 579 limit financing to 90 percent of the home value, requiring a 10 percent down payment. Borrowers below 500 are not eligible. Those without a credit score may still qualify through manual underwriting using nontraditional credit history.
HUD FHA Handbook 4000.1 — II.A.2 Allowable Mortgage Parameters: credit score and maximum LTV
Occupancy Requirements
At least one borrower must occupy the property as their principal residence within 60 days of signing the security instrument and intend to remain for at least one year. FHA defines a principal residence as the place where the borrower maintains their permanent abode and occupies for the majority of the calendar year. A borrower may have only one principal residence at a time. FHA will not insure more than one property as a principal residence except in limited circumstances outlined in the guidelines.
Borrower Eligibility Rules
Borrowers must not be delinquent on an existing FHA-insured mortgage. Any current delinquency must be resolved before a new FHA loan can be considered. Borrowers with delinquent federal tax debt are generally ineligible. However, a valid repayment agreement with the IRS may allow eligibility if the borrower has made at least three months of timely scheduled payments and cannot prepay to meet this minimum. The mortgagee must verify this through public records, credit reports, and IRS documentation, including the payment amount in the debt-to-income ratio calculation.
Borrowers must also not be suspended, debarred, or excluded from HUD programs. The mortgagee verifies this by checking the HUD Limited Denial of Participation list and the System for Award Management.
Property and Lien Requirements
The mortgaged property must be free and clear of all liens except the FHA-insured mortgage and any secondary liens permitted under FHA regulations. If state law requires it to perfect a valid first lien, a non-borrowing spouse may need to sign the security instrument or documentation relinquishing rights to the property. Tax liens from federal debt must be addressed according to the repayment rules above.
Condominium Project Standards
For single-unit condominium approvals, the project must meet several criteria. It requires a certificate of occupancy for all units in the completed project or legal phase, and the subject unit must have been issued its certificate at least one year prior or have been occupied. The project must contain at least five units, cannot be a manufactured home, and must avoid ineligible characteristics. FHA insurance concentration cannot exceed 10 percent of total units in projects with 20 or more units, or two units in smaller projects. Owner occupancy must reach at least 50 percent for existing construction.
Living Trust Eligibility
Properties held in living trusts can be financed if the trust beneficiary is a co-signer who will occupy the home as their principal residence. The trust must provide reasonable notification of changes in beneficial interest or occupancy. The trust name appears on the security instrument, while the individual borrower name may also be required on the note to create a valid lien under state law. A copy of the trust documentation is required.
Practical Checklist for FHA Applicants
- Obtain your credit reports and address any issues early; Hyde Funding offers credit improvement help.
- Confirm you can occupy the home within 60 days and plan to stay at least one year.
- Resolve any delinquency on an existing FHA mortgage.
- Verify federal tax debt status and gather IRS repayment documentation if applicable.
- Ensure the property type meets project approval standards if it is a condominium.
- Prepare trust documents if the home is held in a living trust.
These requirements help maintain program integrity while expanding access to homeownership. Guidelines can vary by specific loan scenario, so reviewing your situation with a lender provides the clearest path forward.
Frequently asked questions
What credit score do I need for an FHA loan?
A minimum decision credit score of 580 allows the maximum financing with a 3.5 percent down payment. Scores from 500 to 579 require a 10 percent down payment. Below 500 is generally ineligible, though manual underwriting with nontraditional credit may help those without scores.
Can I get an FHA loan if I am behind on my current FHA mortgage?
No. Current delinquency on an FHA-insured mortgage makes a borrower ineligible for a new one until the delinquency is fully resolved. This rule protects the program and ensures borrowers address existing obligations first.
How does delinquent federal tax debt affect FHA eligibility?
Borrowers with delinquent federal tax debt are ineligible. A repayment agreement with the IRS can restore eligibility if at least three months of timely payments have been made. The payment amount must be included in debt-to-income calculations and verified with IRS documentation.
What are the occupancy rules for FHA loans?
At least one borrower must occupy the property as their principal residence within 60 days of closing and intend to stay for at least one year. FHA allows only one principal residence per borrower at a time, with limited exceptions for specific situations.
Are there special rules for condominiums with FHA financing?
Yes. Projects must meet owner-occupancy percentages, FHA insurance concentration limits, and other standards. Single-unit approvals require verification that the project has at least five units, proper certificates of occupancy, and meets legal and operational requirements.