Zoning & Codes

FHA Loan Requirements

A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA)and issued by an FHA-approved lender. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.

In 2020, you can borrow up to 96.5% of the value of a home with an FHA loan. This means you’ll need to make a down payment of 3.5%. You’ll need a credit score of at least 580 to qualify. If your credit score falls between 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment. With FHA loans, your down payment can come from savings, a financial gift from a family member, or a grant for down-payment assistance.

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Minimum Property Requirements (MPRs) for an FHA Loans

To qualify for an FHA loan the home must  be marketable in the area and have adequate space necessary to assure suitable living, sleeping, cooking, and dining accommodations and sanitary facilities.

Harris Home Kit House, 1920

Harris Home Kit House, 1920. 520 SF

In the arena of low-income housing and the era of Tiny Houses, the first question is about size requirements. The FHA requires a minimum for “manufactured homes” of 400 SF but does not state a minimum for other kinds of construction.

Minimum home sizes, however, have become fairly standard in local zoning requirements. It is easier to obtain financing if you meet these requirements for both living area and lot size. In some cases, a zoning variance may be obtainable, but negotiations with local zoning boards have widely varying outcomes.

The Minimum Property Requirements (MPRs) also require the home to be equipped with systems that can adequately serve the property for its size—all mechanical systems must be in working order and be at the proper capacity. Heating or central air conditioning systems must be large enough to properly heat or cool the home, and electrical systems must be powerful enough to serve the entire property. Many other FHA MPRs are related to safety issues, structural integrity, termites, and other pests.

The Bottom Line

The bottom line is that the FHA is an insurance program that guarantees loans so downpayment requirements are 10% instead of 20%, and even as low as 3.5% for excellent credit scores. Like most insurance programs, its standards are conservative and low risk although they are more flexible than standard financing.

The home must meet all the expectations of the market where it is located.  Many requirements include locally defined, even subjective standards. What is “adequate,” for example, may vary by geographic and municipal location. Sometimes the standard is variable and sometimes it is just interpreted differently. Sometimes these are appealable and sometimes that is a time-consuming process so the time delay has to be considered.

Working with the FHA is possible and something a person should pursue. It can be frustrating to wade through the bureaucracy but it is also a learning experience that will aid you in working with zoning, town planners, neighbors, etc.

Minimum FHA Loan Requirements for Prospective Owners

In December of 2020 FHA loan requirements were:

  • FICO® score at least 580 = 3.5% down payment.
  • FICO® score between 500 and 579 = 10% down payment.
  • MIP (Mortgage Insurance Premium ) is required.
  • Debt-to-Income Ratio < 43%. Housing costs + other debt.
  • The home must be the borrower’s primary residence.
  • The borrower must have a steady income and proof of employment.

While these do not change often, it is important to confirm that you have current information by checking the FHA Website.

FHA Mortgage Calculator. There is nothing unique to FHA loans in the calculations, but unlike many calculators, it will not send your information to 30 banks that will put you on their robocall list. If you click the link to find current loan interest rates, however, this is not true. Better to do a Google search or call a lender.

Down Payment Assistance Grants Nationally

Homeownership is encouraged by many states, cities, and counties and they offer a variety of loan programs. They are typically for specific locations and purposes —urban renewal, first-time homebuyers, etc.—  and may be offered for a limited period of time. They may or may not require prior residency in the location of the home you wish to own.

Downpayment Assistance Grants for 2020

This is an incomplete list of downpayment assistance programs but still substantial. It sorts listings by state and where appropriate city or county. Some states have several programs.

For current information for a specific location, also contact your state or city housing authority. A good place to start is the Housing and Urban Development (HUD) list of state programs.

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