FHA Loans: How Much Can You Qualify for and What Can You Afford?

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Updated on Friday, January 18, 2019

An FHA loan is a mortgage issued by a private lender and insured by the federal government. FHA loans are known for having lower down payment and credit score requirements than some other types of mortgages. This makes them a popular choice among both first-time homebuyers and other low- to moderate-income borrowers alike.

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FHA loans are insured by the Federal Housing Administration (FHA), which was created by Congress in 1934. FHA is the largest insurer of mortgages in the world. In fact, it has insured over 47.5 million mortgages since the program’s creation some 85 years ago.

Borrowers who use an FHA loan to finance a home purchase are required to pay for FHA Mortgage Insurance. This insurance protects lenders that issue FHA mortgages in the event a borrower defaults on the loan. The insurance reduces risk for the lender, and as a result of this protection, lenders are willing to lend money to consumers who might not be eligible to qualify for a mortgage otherwise.

How much can I borrow through an FHA loan?

While FHA loans are a great choice for many borrowers, they are not a perfect fit for everyone. For starters, FHA loans may be more restrictive about the maximum purchase price for your home, especially in certain parts of the country.

Of course, you can’t simply borrow as much as you please with a conventional loan, either — conventional loans have their own mortgage limits, as well. Yet by contrast, conventional loan limits are often much higher than FHA loan limits.

With either type of loan, the maximum mortgage limit will depend upon where you plan to purchase your home. You can find mortgage limits for your desired purchase area below:

FHA versus conventional loan limits

The best way to understand the difference between mortgage limits and choose the loan that best meets your needs is to compare your options side-by-side.

The overall ranges for both FHA and conventional loan mortgage limits for single-unit homes for the year 2019 are as follows:

  • FHA loan limits: $314,827 and $726,525.
  • Conventional loans limits: $484,350 and $726,525.

Here’s a comparison of FHA versus conventional loan limits in several states to show how the two loan types stack up against each other.

FHA Loan LimitsConventional Loan Limits
San Francisco County, California: $726,525San Francisco County, California: $726,525
Boulder County, Colorado: $626,750Boulder County, Colorado: $626,750
Galveston County, Texas: $331,200Galveston County, Texas: $484,350
Autauga County, Alabama: $314,827Autauga County, Alabama: $484,350

FHA loan requirements

It’s true that FHA loans are often a good fit for first-time home buyers, largely due to lower down payments and credit score requirements. Yet the idea that only first-time homebuyers can qualify for an FHA loan is false.

FHA loans may also work well for people who fall into any of the following categories:

  • Buyers who have difficulty coming up with a large down payment for a home loan.
  • Buyers who have credit challenges.
  • Buyers with a previous home foreclosure. (A three-year post-foreclosure waiting period is required.)

At the same time, FHA loans can’t exactly be qualified as “easy” to qualify for, either. Yes, FHA’s down payment and credit score requirements may be less strict than what is required for other loan types, but the FHA has other requirements that you (or your property) will need to satisfy as well.

FHA requirements and policies are extensive. In fact, the FHA Single Family Housing Policy Handbook is currently a monstrous 1,009 pages long. Thankfully, you don’t need to memorize or even be familiar with most of the policies to take out an FHA mortgage.

Instead, try to focus on learning the most important requirements that could affect your ability to qualify for a loan. From there, you can find a U.S. Department of Housing & Urban Development (HUD)-approved lender to guide you through the rest of the process.

Basic FHA loan requirements:

  • You must have a minimum middle credit score of 500 (though many lenders may require a higher score to qualify).
  • You must make a minimum down payment of 3.5% on most FHA loans.
  • Your debt-to-income (DTI) ratio cannot be higher than 43%.
  • Your mortgage-to-income ratio cannot be higher than 31%.
  • The property must satisfy HUD’s Property Acceptability Criteria.
  • The property must pass an FHA appraisal.
  • You must have verifiable employment for the previous two years.
  • You must be able to verify your income through documentation.
  • You must have a clear Credit Alert Interactive Verification Reporting System (CAIVRs) Report.

How much house can I afford?

Before you start shopping for the perfect home, it’s critical to first have a firm grasp of your finances. There are a number of factors that will determine how much house you can afford, and you shouldn’t ignore any of them.

  • Your income
  • Your credit rating
  • Your monthly expenses
  • Your down payment
  • Your interest rate

Of course, trying to sort through all of these factors on your own can be confusing for the average person, especially if it’s your first time purchasing a home. If you feel lost, you’re not alone.

Thankfully, there are a number of online tools that can be useful during the home-buying process. For example, this calculator from MagnifyMoney can help you translate the monthly payment you can afford into an overall borrowing limit.

Knowing how much you can afford to borrow is one of the most important steps in your home-buying process. Don’t forget, your lender should be able to provide helpful guidance if you have additional questions.

Why you should comparison-shop for an FHA mortgage

It’s always a smart idea to shop around before you apply for any type of mortgage — FHA or otherwise. Taking out a mortgage of any kind is a big commitment. If you get impatient and take shortcuts during the loan-shopping process, you might wind up paying more for your mortgage as a result.

Tendayi Kapfidze, chief economist with LendingTree, recommended that borrowers comparison-shop for several reasons: “It’s important to comparison-shop because interest rates can vary among lenders. Individual lenders will also target different types of borrowers. The more lenders you talk to, the more likely you are to find one who may be able to work with your particular circumstance.”

The CFPB advises caution for borrowers who are considering an FHA mortgage as well. “For borrowers with good credit and a medium (10-15%) down payment, FHA loans tend to be more expensive than conventional loans. For borrowers with lower credit scores or a smaller down payment, FHA loans often can be the cheapest option. If you’re not sure, ask lenders for quotes for both options and compare total costs to see which offers the best overall deal.”

Not sure where to begin your search? HUD provides a list of qualified FHA lenders on its website.

LendingTree can also help to simplify your mortgage search by giving you multiple offers from several lenders in a matter of minutes. Finally, you can compare current FHA loan rates in your area by visiting LendingTree’s FHA page.

So, do your homework; research and compare what different lenders have to offer. Once you know your options for an FHA mortgage, you’ll be one step closer to purchasing the home of your dreams.

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