Ultimate Guide to Getting an FHA Loan in 2023
FHA loans are the key to homeownership for many types of borrowers, including first-time buyers and those with lower credit scores.
These loans are backed by the Federal Housing Administration, which offers FHA-approved lenders protection in case a borrower defaults on the loan.
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Due to these added protections, FHA lenders are able to offer borrowers simpler, more flexible loan options that can fit a wide range of needs.
Let’s dig into the FHA loan requirements for 2023, so you can determine whether this loan type is the best option for you.
FHA loan requirements in 2023
Lower down payments along with flexible credit scores and debt requirements are just some of the benefits you can expect from an FHA loan.
The following are the most important requirements to qualify.
FHA credit score and down payment requirements
FHA loans allow down payment amounts as low as 3.5%.
However, if you intend to take advantage of an FHA loan’s lowest credit score allowance, you must have a FICO® credit score of at least 580 to qualify. If you have a credit score below 580, the down payment requirement rises to 10%.
To compare, conventional loans require a credit score of at least 620 to qualify.
In exchange for a higher down payment amount of 10%, FHA loan borrowers can still access funding for a home with a lower credit score. Additionally, borrowers may be able to qualify for a down payment assistance program.
FHA debt-to-income ratio (DTI)
A borrower’s debt-to-income ratio (DTI) is a comparison of your monthly debts to your monthly income. FHA lenders generally allow DTIs at or below 50%.
To calculate your DTI, subtract your monthly debt payments—which could include your rent or mortgage, auto loans, credit cards and other debts—from your gross monthly income. Or, you can use an online DTI calculator.
Your lender will calculate your DTI based on the documentation you provide for your income and debt.
A lower DTI is always better, but FHA loans offer greater flexibility with DTI than other loan types.
FHA loan limits
FHA lending limits are the maximum loan amounts the FHA will insure. The limits are updated annually, and they can vary by county.
2023 FHA loan limits for low-cost areas, based on the type of home:
- Single-family: $472,030
- Duplex: $604,400
- Tri-plex: $730,525
- Four-plex: $907,900
2023 limits for high-cost areas:
- Single-family: $1,089,300
- Duplex: $1,394,775
- Tri-plex: $1,685,850
- Four-plex: $2,095,200
To find the limits in your area, use the U.S. Department of Housing and Urban Development’s FHA Mortgage Limits page.
FHA mortgage insurance premium (MIP)
FHA borrowers are required to pay up-front and annual mortgage insurance premiums (MIP). This is the key that allows FHA lenders to offer such flexible options.
Recently, the HUD decided to lower the annual premium, so borrowers who get an FHA loan after March 20, 2023 can take advantage of this additional benefit.
Your upfront payment amount is equal to 1.75% of your total loan amount at closing.
Your annual premium, which will be broken down into your monthly payment amount, ranges from 0.15% to 0.75% of your outstanding loan balance.
If you make a down payment of 10%, you will have to pay MIP for 11 years. If you put down less than 10%, you will pay MIP for the life of the loan.
However, once you reach at least 20% equity in your home, you could decide to refinance your FHA loan to a conventional loan. Refinancing with enough equity will eliminate mortgage insurance.
FHA documentation requirements
Your lender will need to verify your income and employment to prove that you have a stable, steady source of income and that you can make your monthly mortgage payments.
To prove this, your lender will need to see the following:
- Credit report
- Recent pay stubs
- W-2 forms and tax returns from the past one to two years
- Bank statements
Your lender will work closely with you to make sure you supply all the required documentation and ask for any additional documentation that may be needed.
Be sure to provide any requested documentation quickly to make the lending process as smooth as possible.
FHA property requirements
FHA loans have certain property requirements to ensure that the property is a sound investment for everyone involved.
FHA property requirements include:
- Meeting FHA safety, security and soundness standards, including electrical systems, roof, property access and possible hazards
- Passing inspection and up-to-date appraisal
- Loan must be for a primary residence
- Buyer must move into the house within 60 days of closing
Additionally, borrowers must wait three years after losing a home to foreclosure before they can apply for an FHA loan.
There are certain exceptions to this requirement, so be sure to discuss your options with your lender.
Ready To Take Your Next Step?
Apply for an FHA loan with Compass Mortgage
To get an FHA loan, borrowers must apply with an FHA-approved lender.
Compass Mortgage is proud to offer this flexible loan option to borrowers.
If you’re ready to get started, apply for pre-approval today to learn about your personalized loan options and interest rates.
At Compass Mortgage, we offer our Get Committed® program to put you in the best possible position to win the home you truly want.
We offer much more than a standard pre-approval: Get Committed® provides a fully underwritten loan commitment that locks in your interest rate, sometimes before you even find the property you want to buy.
A loan commitment essentially has the power of a cash offer, showing the seller you’re fully approved financially and that your deal isn’t likely to fall through.
Apply now, or contact our team for more information.
Compass Mortgage treats our borrowers like family, with a simple, personalized loan process that fits your lifestyle and goals. We can’t wait to get you into your new home!