How to Apply for an FHA Loan (2024)

Applying for a Federal Housing Administration (FHA) mortgage entails meeting the lender’s criteria, providing your financial information, and complying with additional lender requests. Learn about the requirements for these mortgages and the process for how to apply for an FHA loan.

Key Takeaways

FHA loans are available only through approved lenders, not from the government.
The total process, from application to home closing, can take 30 to 60 days.
You can qualify for an FHA loan even if your credit score is as low as 500.
As of the end of the first quarter of 2024, 14% of new houses were sold to buyers with FHA financing.
FHA loans allow down payments as low as 3.5% for qualifying borrowers.

Who Is an FHA Loan For?

Federal Housing Administration loans are a type of mortgage insured by the government. They've been helping people become homebuyers since 1934. Because these loans pose less risk to the lender, lenders are more willing to accept borrowers with lower credit scores and smaller down payments.

You may have heard that you should have a down payment of at least 20% ready before buying a home, but few people follow that advice. With FHA loans, you can buy a home with a down payment as low as 3.5%. According to the National Association of Realtors, the typical down payment for first-time homebuyers was just 8%, as many homeowners take advantage of FHA mortgage benefits.

That's because "FHA loans have more lenient credit score requirements [than other mortgages], providing an opportunity for individuals with less-than-perfect credit to qualify for a mortgage," said Carl Holman, director of communications with A&D Mortgage.

For example, the average sales price of a home purchased with an FHA mortgage was about $350,000 as of the end of the first quarter of 2024. If you followed the traditional guidance of saving 20% for a down payment, that means you'd need at least $70,000 in the bank. By contrast, an FHA loan—with a down payment minimum of just 3.5%—would allow you to become a homeowner with just $12,250.

These loans aren't for everyone. For those with good credit and a down payment of at least 10%, FHA loans may be more expensive than conventional mortgages, so it's wise to explore other options.

How to Apply for an FHA Loan

There are nine main steps to applying for an FHA loan from a mortgage lender:

Preparing to Apply for an FHA Loan

You can save time by preparing and gathering the following information:

W-2 statements and tax returns
Business tax returns from the past two years (if you're self-employed)
Account numbers and statements for bank accounts and credit cards
Account information for any personal loans, auto loans, or student loans
Investment account balances and statements
Retirement account statements
Documentation of other income, such as alimony or child support

Besides your FHA down payment, make sure to budget for closing costs, which can be 2% to 5% of the home purchase price.

Applying for an FHA Loan

Understand the FHA Loan Requirements

To qualify for an FHA loan, you must meet the following minimum requirements:

Citizenship: You must be a U.S. citizen or a lawful permanent resident alien.
Credit: To qualify for the lowest possible down payment of 3.5%, you need a credit score of 580 or better. Those with credit scores between 500 and 579 can still qualify for an FHA loan, but FHA requires those borrowers to have a down payment of 10% or more. Borrowers with credit scores below 500 are not eligible.
Debt-to-income (DTI) ratio: FHA lenders will look at your DTI to determine if you can afford the mortgage you're applying for. Typically, lenders look for a DTI of 31% or better, but some lenders will be willing to accept DTIs as high as 43%.
Purchase price: FHA loans are only available for properties under a certain price. The maximum varies by state and county. For example, the maximum price for an FHA loan for a single-family home in Lake County, Florida is $498,257.

Determine Your Eligibility

An FHA loan must be for an owner-occupied principal residence, meaning you intend to buy and live in the home. It's possible to purchase multi-unit properties, such as condo or duplex buildings, with FHA loans, but you must live in one of the units as your primary residence.

Find an FHA-Approved Lender

Not all mortgage companies are approved to issue FHA loans, so finding an appropriate lender is a critical first step. To find a lender in your area, use the U.S. Department of Housing and Urban Development (HUD) Lender List Search tool.

Fill Out and Submit an FHA Loan Application

Once you've found a lender, you can fill out an application. Many lenders allow you to complete and submit the FHA mortgage application online. The application will ask for your personal details, including your Social Security number, address, employment, income, and assets. You will also need to provide your consent for a hard credit check.

Gather and Submit Your Documents

Your mortgage lender will require you to submit copies of the documentation listed above, such as your tax returns and pay stubs.

Compare and Choose Your Loan Offers

If the lender approves your application, the lender will provide you with some different loan options. For example, FHA loans can have terms of 15 or 30 years. A longer-term will give you a more manageable monthly payment, but you'll pay more in interest.

Complete the FHA Appraisal

FHA mortgages require appraisals that differ from those on homes purchased with conventional mortgages.

"The underwriting process for FHA loans can be more complex and lengthier than conventional loans due to the additional documentation and scrutiny required by the FHA," Holman said.

The FHA appraisal ensures the property meets HUD's requirements for safety standards and structure condition. The lender will order the appraisal for you, and the report will note any concerns or necessary repairs.

Depending on the severity of any issues found, the property may need to be repaired before the deal can close.

Complete the Underwriting Process

After the appraisal, the lender will complete the underwriting process to finalize your loan and schedule your loan closing date. At this point, you'll also need to get title insurance and provide proof of homeowners insurance.

When applying for an FHA loan, avoid applying for new credit cards or loans or making larger purchases until after close; any changes to your credit report could cause a loan denial.

Close on Your FHA Loan

Finally, the lender will work with you to set a closing date. At closing, you sign the final documents and receive the keys to your new home. Then, you will officially be a homeowner.

Alternatives to an FHA Loan

Although FHA loans offer many benefits, some other programs may be a better fit for your circ*mstances.

Special financing programs: Some states and banks or credit unions have special financing programs for new homebuyers with low down payment requirements. Depending on the loan type, you could qualify for a mortgage with a down payment of 0% to 3%.
Conventional mortgage: Conventional mortgages are available to borrowers with down payments of at least 3%, and you may qualify for better mortgage interest rates and terms than you'd get with an FHA loan if you have very good to excellent credit.
Department of Veterans Affairs (VA) loans: VA loans are available to military service members and veterans, and allow qualifying borrowers to buy a home with 0% down.
U.S. Department of Agriculture (USDA) loan: Borrowers looking to buy a home in a qualifying rural area can use USDA mortgages to buy a house with a down payment as low as 0%.

Frequently Asked Questions (FAQs)

What Is the First Step to Getting an FHA Loan?

The first step in applying for an FHA loan is to research the program requirements to determine whether you qualify. You'll need a credit score of at least 500 (580 to qualify for the lowest down payment) and a down payment of at least 3.5%.

Can I Apply for an FHA Loan Myself?

You can apply for an FHA loan if you're single or married, as long as you are a U.S. citizen or permanent resident alien.

How Long Does FHA Approval Take?

The entire FHA mortgage process, from the time you submit the application to the closing date, can take 30 to 60 days.

Are FHA Loans Hard to Get?

FHA loans are relatively easy to get compared to other mortgage options, such as conventional loans, because they have lower credit and down payment requirements.

How Much Money Do You Need for an FHA?

You can purchase a home with an FHA mortgage with as little as 3.5% of the home's price as a down payment. However, you'll also need 2% to 5% for closing costs. Assuming the house is $300,000, you should save at least $10,500 for the down payment and $6,000 to $15,000 for closing costs.