There are several types of FHA loans. The type you choose limits the type of home you can buy and how you can spend the money you receive. This makes it especially important to be sure you’re getting the right type of loan. If none of the loan types discussed next match your goals, you might want to consider another type of government loan.
Purchase
When purchasing a home, you can put as little as 3.5% down if you have a median FICO® Score of 580. If you have a score that low, you’ll need to keep an equally low DTI. Rocket Mortgage requires a ratio of no more than 38% before your mortgage payment is included, and no more than 45% once it’s included.
If your median FICO® Score is 620 or higher, you may be able to qualify with a higher DTI. In no event will your DTI be able to rise above 57%.
At Rocket Mortgage, you can purchase up to a two-unit property with an FHA loan.
FHA Rate-And-Term Refinances
Let’s say you have a different type of mortgage and interest rates are falling. Perhaps you’re interested in refinancing to take advantage of better mortgage rates but your credit profile has taken a hit.
An FHA refinance could be a good option because of its less stringent credit requirements. You can use this to lower your rate or change your term with a FICO® Score median as low as 580, assuming you have a low DTI. You may be able to carry more debt into the transaction if your median FICO® is 620 or higher.
Depending on the amount of equity you carry into the rate-and-term refinance, you could end up paying mortgage insurance premiums for the life of the loan in addition to an upfront premium. If you’re already in an FHA loan, you can save some money on your rate-and-term transaction.
FHA Streamline
An FHA Streamline Refinance allows homeowners with an FHA loan to do a rate-and-term refinance with a few special benefits. To begin with, you may be able to refinance to a lower rate.
The logic here is that if you have a more affordable payment, you’re more likely to stay in your home and pay it off, which is good for the FHA. You’ll also usually be able to get a lower mortgage insurance rate because the MIP for FHA Streamlines is 0.55% of your loan amount each year. Additionally, the upfront MIP is only 0.01%.
Another benefit of FHA Streamlines is reduced documentation. Every situation is different, but because you already have an existing FHA loan, you may need less documentation for:
The appraisal
Employment verification
Income and assets
FHA Streamline Requirements
If you don’t have an existing home loan with Rocket Mortgage, we require a 640 median FICO® Score. If your loan is with us, the required median FICO® Score is 580.
Timing is also important: You must make at least six payments on your current loan before you can be approved for a Streamline. Also, at least 210 days must pass between the first payment you make on your current loan and the first payment on the new Streamline.
Finally, you have to be up to date on your loan. For the purposes of an FHA Streamline, that means having no 30-day late payments in the last 6 months and only one payment that’s 30 days late in the last year.
FHA Cash-Out Refinance
It’s also possible to get a cash-out refinance with an FHA loan. Rocket Mortgage requires a minimum median credit score of 620 for an FHA cash-out refinance. The FHA requires that if you convert your property value into cash, you leave at least 15% equity in your home.
If you’re doing a cash-out refinance, you’ll need full documentation of income and assets, as well as employment verification.
FHA 203(k) Loan
While Rocket Mortgage doesn’t offer this particular loan, an FHA 203(k) loan allows you to buy a home and make renovations on a single loan. While it’s possible to only make renovations with a 203(k) loan, this usually isn’t your most affordable choice.
The minimum FHA 203(k) loan balance is $5,000, so you can’t borrow less than this. Any home repairs or improvements you make must conclude within 6 months in order to stay within your loan terms.
Some eligible projects you can complete with a 203(k) loan include:
Replacing old or dangerous flooring
Making improvements to the home’s modernization (This can include adding systems such as central air.)
Adding or replacing roofing, sections of gutters or plumbing
Making accessibility improvements for disabled people who live in the home
Making structural repairs and changes to the home’s foundation
There are two types of 203(k) loans: Standard loans and Limited loans. Limited loans require less paperwork for approval, while Standard loans give you more freedom to repair your property.
The FHA establishes loan limits annually based on the median home prices in metro areas and counties. The maximum loan amount is 115% of the area's median home price, subject to a national floor and ceiling. In 2024, the national floor is $498,257, and the national ceiling is $1,149,825.
The FHA establishes loan limits annually based on the median home prices in metro areas and counties. The maximum loan amount is 115% of the area's median home price, subject to a national floor and ceiling. In 2024, the national floor is $498,257, and the national ceiling is $1,149,825.
According to HUD, the maximum FHA lending amount for high-cost areas (such as large metropolitan areas) is $1,149,825 for 2024. In lower-cost areas, the FHA limits are based on county, but generally, for one-unit properties the 2024 limit is $498,257.
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
The FHA-recommended limit is a DTI ratio of 43%. However, even if you have a higher DTI ratio, lenders can still consider you if you have considerable cash reserves and a high income.
Still, you can avoid FHA mortgage insurance by: Putting down 20 percent – This is the simplest way to avoid FHA mortgage insurance — but if you have the savings to put down 20 percent, it might make more sense to work on your credit score to qualify for a conventional loan instead.
How much house can I afford with 40,000 a year? With a $40,000 annual salary, you should be able to afford a home that is between $100,000 and $160,000.
You'll likely need to make about $75,000 a year to buy a $300K house. This is an estimate, but, as a rule of thumb, with a 3 percent down payment on a conventional 30-year mortgage at 7 percent, your monthly mortgage payment will be around $2,250.
While conventional mortgages usually require a credit score of 620 or more, FHA loans are open to borrowers with credit scores as low as 500. You don't need a big down payment. If your credit score is 580 or more, you could qualify to put down just 3.5%. Interest rates are competitive.
One reason a seller might refuse your FHA-backed offer is that they believe the home sale may be more likely to fall through due to the FHA loan program's more lenient underwriting requirements.
In 2022, 9.1% of applicants were denied a home-purchase loan, according to data collected under the Home Mortgage Disclosure Act. However, some loan programs have a higher denial rate than others. Here's how it breaks down. Federal Housing Administration loans: 14.4% denial rate.
Can Home Sellers Refuse Offers Backed By An FHA Loan? Unfortunately, yes, they can. In a competitive seller's market, a home's seller might have their pick of many offers. They may even be able to choose an all-cash offer and avoid dealing with the mortgage process altogether.
The FHA and its lenders want to know you will be able to consistently meet repayments and not default on the loan. The FHA will need to see proof of steady income over the past two years and will ask for information like pay stubs, W-2s, investment statements and annual tax returns.
FHA guidelines for DTI ratios vary depending on credit score and other financial considerations, such as cash on hand. The highest DTI allowed is 50 percent if the borrower has a credit score of 580 or higher. Depending on the lender, other qualifications could also be required.
FHA does not require that collection accounts be paid off as a condition of mortgage approval. However, court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsem*nt.
For a $200,000, 30-year mortgage with a 6% interest rate, you'd pay around $1,199 per month. But the exact cost of your mortgage will depend on its length and the rate you get. Aly J. Yale is a personal finance journalist with work featured in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.
It cannot be used to finance a second home, a rental home, a vacation home, or an investment property. That said, there are some exceptions. You can use an FHA loan to purchase up to a four-unit dwelling, as long as you live in one unit as your primary residence. Then you can rent out the other units for income.
If you earn $60K a year, that means you can afford to spend around $180,000 on a house, maybe a bit more if you have little or no other debts. However, depending on where you want to live, interest rates, and how much debt you're carrying, that figure could change significantly.
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