The Basics
What FHA Actually Requires
FHA requirements exist because the Federal Housing Administration is insuring your loan against default. Every requirement — credit score, income verification, employment history, property condition — is designed to assess the likelihood you'll repay and that the collateral (your home) is worth what you're paying.
The good news is that FHA sets the floor, not the ceiling. Lenders like Bayou Mortgage work to qualify you to FHA guidelines — not arbitrary internal thresholds. Understanding what the actual requirements are puts you in control of the conversation.
580
Min. credit score for 3.5% down
57%
Maximum debt-to-income ratio
2 yrs
Employment history required
Credit
Credit Score Requirements
FHA uses your middle credit score — the middle of three scores pulled from Equifax, Experian, and TransUnion. If you have a co-borrower, the lower of the two middle scores is used for qualification. FHA requires FICO scores specifically, which is why your Credit Karma score (VantageScore) may read differently than what your lender pulls.
The Two Credit Thresholds
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580 or higherQualifies for 3.5% minimum down payment. Full FHA program available.
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500–579FHA still allows this range, but requires 10% down. Fewer lenders offer this tier — it's available but harder to find.
What Lenders Look Beyond the Score
Your score is the entry point — but underwriters also review your full credit history: payment history over the past 12 months, unpaid collections, judgments, charge-offs, and any derogatory items in the last 24 months carry significant weight.
A 620 score with a 30-day late from last month may be harder to approve than a 590 score with a clean 24-month history. The story behind the number matters.
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Lender overlays on credit
Many lenders add a credit score overlay of 620 or even 640 on top of FHA's 580 minimum. This is legal — lenders can be more restrictive than FHA. Bayou Mortgage works to FHA minimums, not internal overlays. If you've been turned down elsewhere for credit score, it's worth a second look. See full credit score guide →
Income
Income Requirements & DTI Limits
FHA has no minimum income requirement. What it does have is a maximum debt-to-income ratio (DTI) — the percentage of your gross monthly income that goes toward debt payments. FHA evaluates two DTI figures:
Front-End DTI (Housing Ratio)
Your proposed housing payment — principal, interest, property taxes, homeowners insurance, and MIP — divided by gross monthly income.
FHA guideline: 31% or less. Lenders can approve above this with compensating factors (strong credit, reserves, low overall DTI).
Back-End DTI (Total Debt)
All monthly debt obligations — housing payment plus car loans, student loans, credit cards, child support — divided by gross monthly income.
FHA guideline: 43% standard, up to 57% with compensating factors like higher credit score or verified reserves.
FHA accepts a wide range of income types. The key is that income must be documented, stable, and likely to continue for at least 3 years.
Income Types FHA Accepts
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W-2 employment incomeMost straightforward. Recent pay stubs + 2 years W-2s.
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Self-employment income2 years of tax returns required. Average of 2 years used (or lower year if declining).
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Part-time incomeMust have 2-year history of part-time work to count it.
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Social Security / disabilityAward letter required. Not subject to income tax — can be grossed up 25% for qualifying.
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Alimony / child supportMust be court-ordered, documented, and have 3+ years remaining.
Income That Doesn't Count
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Cash income with no documentationUndocumented income cannot be used for qualification.
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New income without historyStarting a new job right before applying — income may not count until first paystub received.
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Declining self-employmentIf your last 2 years of Schedule C shows declining net income, lenders use the lower year.
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Gift incomeGifts can fund the down payment but cannot count as qualifying income.
Employment
Employment History Requirements
FHA requires a 2-year employment history — but this doesn't mean 2 years at the same job. What FHA looks for is 2 years in the same field or line of work. Changing employers within the same industry is generally fine. What raises flags is switching careers entirely or having unexplained gaps.
SituationFHA TreatmentDocumentation Needed
Same employer 2+ years
Straightforward
Pay stubs + W-2s
Job change, same field
Generally acceptable
Both employer records
Career change
May require explanation
Letter of explanation
Gap under 30 days
Generally acceptable
Brief explanation
Gap 30+ days
Requires explanation
Gap letter explaining reason
Recently returned to work
Acceptable with history
Prior employment verification
Recent graduate, first job
Acceptable if in studied field
Diploma / transcript + offer letter
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The gap letter
If you have an employment gap of 30+ days, a gap letter is a short written explanation of what you were doing (caring for a family member, medical situation, layoff, relocation) and that you're now employed. It's not a big deal — underwriters see them constantly. What matters is having a reasonable explanation and being back to work.
Assets
Down Payment & Asset Requirements
FHA's 3.5% minimum down payment is one of its most flexible features — but the source of those funds matters. Lenders verify where your down payment comes from and how long it's been in your account. This is called seasoning.
Acceptable Down Payment Sources
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Personal bank accountTypically need 2 months of statements showing funds. Large deposits may require sourcing.
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Gift from family member
100% of down payment can be gifted. Requires a gift letter stating no repayment is expected. See gift fund rules →✓
Proceeds from home saleDocumented with HUD-1 or closing disclosure from prior sale.
What About Reserves?
FHA does not require cash reserves after closing for most single-family purchases. However, lenders may overlay a reserve requirement (typically 1–3 months of housing payments) for borrowers with lower credit scores or higher DTI.
For 3–4 unit properties, FHA does require 3 months of PITI reserves after closing.
Property
FHA Property Requirements
FHA doesn't just underwrite the borrower — it underwriters the property too. The home must meet FHA Minimum Property Standards (MPS), which are verified during the FHA appraisal. These standards exist because FHA is insuring the loan — the collateral needs to be habitable and structurally sound.
What Can Fail an FHA Appraisal
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Peeling or chipping paint (pre-1978 homes)Lead paint hazard — must be remediated before closing.
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Roof with less than 2 years of useful lifeAppraiser estimates remaining life — below 2 years requires repair or replacement.
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Non-functioning utilitiesHeat, electrical, plumbing must be operational at time of appraisal.
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Broken windows or doorsSecurity and habitability issue — must be repaired.
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Exposed wiring or safety hazardsImmediate safety concerns must be corrected.
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Evidence of active pest infestationTermites or other wood-destroying insects require treatment and clearance.
Property Types FHA Accepts
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Single-family homes (1 unit)Most common FHA purchase. Must be primary residence.
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2–4 unit propertiesYou must occupy one unit. Higher loan limits apply. 3 months reserves required.
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FHA-approved condominiumsCondo project must be on HUD's approved list or go through spot approval.
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Manufactured homes on permanent foundationMust meet HUD manufactured housing standards, titled as real property.
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Investment properties / vacation homesFHA is primary residence only. You must intend to occupy within 60 days of closing.
Lender Overlays
FHA Minimums vs. Lender Overlays
This is the most misunderstood part of FHA lending. FHA sets the floor — individual lenders can and do add stricter requirements on top of FHA guidelines. These are called overlays. They're not FHA rules — they're the lender's internal risk policies.
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Common overlays that cause unnecessary denials
Credit score overlays (640 minimum instead of FHA's 580). DTI caps below 50% when FHA allows 57%. Collections must be paid when FHA allows them unpaid. No manual underwriting when FHA allows it. If you've been denied by another lender, the denial may be their overlay — not an FHA rule. Ask Bayou Mortgage to review your file against actual FHA guidelines.
Bayou Mortgage works to FHA minimums, not internal overlays. We also use manual underwriting when automated underwriting systems (AUS) don't approve a file that should qualify — allowing a human underwriter to evaluate compensating factors that an algorithm misses.
Quick Reference
FHA Requirements Checklist
Every FHA requirement in one place. Use this as your pre-application checklist.
FHA Qualification Summary
2025 FHA Requirements at a Glance
RequirementFHA Guideline (2025)
Credit Score (3.5% down)
580 or higher
Credit Score (10% down)
500–579
Minimum Down Payment
3.5% of purchase price
Front-End DTI
31% guideline (flexible with compensating factors)
Back-End DTI
Up to 57% with compensating factors
Employment History
2 years same field (not necessarily same employer)
Income Documentation
2 years tax returns, W-2s, 30 days pay stubs
Down Payment Source
Own savings, gift, DPA — must be documented and sourced
Bankruptcy (Ch. 7)
2-year waiting period from discharge
Foreclosure
3-year waiting period from completion
Property Occupancy
Primary residence only — must occupy within 60 days
Property Condition
Must meet FHA Minimum Property Standards at appraisal
Citizenship
US citizens, permanent residents, eligible non-permanent
Guidelines current as of 2025. Individual lender overlays may apply. Bayou Mortgage · NMLS #1845349 · Equal Housing Lender.
Common Questions
FHA Requirements FAQ
Questions specific to FHA qualification requirements.
What's the difference between front-end and back-end DTI? +
Front-end DTI (also called housing ratio) is just your new housing payment divided by gross income. Back-end DTI includes all monthly debt obligations — housing plus car loans, student loans, credit cards, and any court-ordered payments. FHA cares more about back-end DTI. The 43–57% guideline refers to back-end.
Do I have to pay off collections to get an FHA loan? +
Not necessarily. FHA does not require open collections to be paid before closing. However, underwriters consider total outstanding collections when assessing risk — particularly if the total is high. Medical collections are treated differently under recent CFPB rule changes. Some lenders add an overlay requiring collections to be paid; FHA itself does not require this.
See how collections affect FHA approval →What is a "thin file" and how does FHA handle it? +
A thin file means you have little to no credit history — not enough accounts or history for a standard credit score. FHA allows non-traditional credit in this case: 12 months of on-time rent payments, utility bills, insurance premiums, and similar recurring obligations can substitute. This requires manual underwriting and is less common, but it's a real path for buyers who've avoided credit.
Can I qualify with a job I just started? +
It depends on your situation. If you recently graduated and took a job in your field of study, FHA accepts this even without 2 years of work history. If you changed careers entirely, a brand-new job may be harder to use without a prior history in the field. If you're starting a new job in the same field after a gap, an offer letter and first pay stub may be sufficient. Talk to Bayou Mortgage about your specific timeline.
What if the home doesn't pass the FHA appraisal? +
If the FHA appraiser identifies property condition issues, the seller typically has to make repairs before closing. Common options: negotiate repairs into the purchase contract, reduce the purchase price, or have the buyer fund an escrow holdback for repairs. If repairs are significant and the seller won't address them, you may need to walk away or consider a different loan type.
Does FHA require a home inspection? +
No — FHA requires an appraisal, not an inspection. The appraisal checks value and basic habitability (FHA MPS). A home inspection is separate, paid by the buyer, and goes much deeper into the home's systems and condition. FHA does not require it, but we strongly recommend every buyer get one regardless of loan type. An appraiser is not a home inspector.
Think You Might Qualify?
Let Bayou Mortgage review your full picture — credit, income, employment, and property. We'll give you a straight answer.
