FHA Loan Requirements 2025
Complete guide to FHA loan requirements: credit scores, down payment, debt-to-income limits, income verification, and property standards for Bergen County homebuyers.
FHA Specialist | NMLS #1577754 | Licensed in NJ
FHA Loan Requirements Overview
FHA (Federal Housing Administration) loans are government-insured mortgages designed to help first-time buyers and those with limited savings or credit challenges. FHA loans are known for their low down payment (3.5%) and flexible credit requirements, making homeownership more accessible.
Understanding FHA requirements is crucial because they differ significantly from conventional loans. While conventional loans typically require 5-20% down and 620-640+ credit scores, FHA allows 3.5% down with 580 credit—opening doors for Bergen County buyers who might not qualify elsewhere.
This comprehensive guide covers all FHA requirements for 2025, including credit scores, down payment, income verification, debt-to-income limits, property standards, and special considerations for Bergen County's high-cost housing market.
For More FHA Details
This page focuses on FHA requirements. For information about FHA loan benefits, how FHA works, and when to use FHA vs conventional, see our main FHA Loan Guide.
FHA Credit Score Requirements
FHA has the most lenient credit score requirements among major loan programs. Here's the breakdown:
580+ Credit Score
- 3.5% minimum down payment
- Easier approval process
- More lender options
- Standard FHA guidelines
Bergen County Example: $500K home, 3.5% down = $17,500 required
500-579 Credit Score
- 10% minimum down payment
- Stricter approval criteria
- Fewer lenders participate
- May require manual underwriting
Bergen County Example: $500K home, 10% down = $50,000 required
Lender Overlays: The 620 Reality
While FHA technically allows 580 credit scores, many lenders impose "overlays"—stricter internal requirements. Most lenders require 620+ credit for automated underwriting approval. Below 620, you'll likely need:
- • Manual underwriting (more documentation, longer process)
- • Larger down payment (sometimes 10%+ even with 580+ score)
- • Compensating factors (high income, low DTI, cash reserves)
- • Clean credit history for past 12 months (no late payments)
Credit History Requirements
Beyond the credit score number, FHA evaluates your credit history:
- Bankruptcy: Must wait 2 years from discharge date (Chapter 7) or 1 year into repayment plan with on-time payments (Chapter 13)
- Foreclosure: 3-year waiting period from completion date
- Short sale/deed-in-lieu: 3-year waiting period
- Collections/charge-offs: Generally don't need to be paid off (except medical collections), but must be factored into DTI if payment plan exists
- Recent late payments: No 30-day lates in past 12 months (preferred); pattern of recent lates can cause denial
FHA Down Payment Requirements
FHA's low down payment is one of its biggest advantages. Here's everything you need to know:
Minimum Down Payment by Credit Score
Credit Score 580+:
Minimum 3.5% down payment
Example: $500K Bergen County home = $17,500 down
Credit Score 500-579:
Minimum 10% down payment
Example: $500K home = $50,000 down
Credit Score Below 500:
Not eligible for FHA financing
Consider credit repair before applying
Where Down Payment Can Come From
Acceptable Sources
- Personal savings (checking, savings accounts)
- Gift funds from family members (with gift letter)
- Down payment assistance grants/programs
- 401(k) loans or withdrawals (with documentation)
- Sale proceeds from previous home
- Tax refunds (with documentation)
Unacceptable Sources
- Personal loans or credit cards
- Payday loans or cash advances
- Seller-funded down payment assistance
- Undocumented cash deposits
- Borrowed funds without repayment terms
Gift Funds Rules
FHA allows 100% of your down payment to come from gift funds (no minimum borrower contribution required). Requirements:
- • Donor must be family member (spouse, parent, child, sibling, grandparent, uncle/aunt)
- • Signed gift letter stating funds are a gift with no repayment obligation
- • Paper trail showing transfer from donor's account to yours
- • Donor's bank statements showing sufficient funds
- • Gifts from employers, charities, or government agencies also allowed (with documentation)
Debt-to-Income (DTI) Requirements
Your debt-to-income ratio (DTI) compares your total monthly debt payments to your gross monthly income. FHA has specific DTI limits:
FHA DTI Limits
Standard Maximum: 43% DTI
Most FHA loans approve up to 43% with automated underwriting
With Compensating Factors: 50% DTI
Possible with high credit score (680+), cash reserves, minimal payment increase, or significant residual income
Manual Underwriting: 31%/43% or 37%/47%
Front-end (housing) / Back-end (total) ratios for manually underwritten loans
How DTI is Calculated
Formula: (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
What's Included in Debt Payments:
- • New mortgage payment (principal, interest, taxes, insurance, HOA, MIP)
- • Credit card minimum payments
- • Auto loans and leases
- • Student loans (actual payment or 0.5-1% of balance if deferred)
- • Personal loans
- • Child support / alimony payments
- • Other mortgages or rental property debt (if negative cash flow)
What's NOT Included:
- • Utilities, groceries, gas, insurance (except mortgage insurance)
- • Debts with <10 months remaining (lender discretion)
- • Authorized user accounts (if you can prove you don't pay)
Bergen County DTI Examples
Example 1: 38% DTI (Approved)
Gross monthly income: $8,000
New mortgage payment: $2,500
Car payment: $400
Student loan: $150
Total debt: $3,050/month
DTI: $3,050 ÷ $8,000 = 38% ✓
Example 2: 52% DTI (Needs Help)
Gross monthly income: $6,500
New mortgage payment: $2,800
Car payment: $550
Credit cards: $300
Total debt: $3,650/month
DTI: $3,650 ÷ $6,500 = 56% ✗
Solution: Pay off credit cards, reduce purchase price, or add co-borrower income
Income Requirements & Verification
FHA requires 2 years of stable, verifiable income to qualify. Here's what documentation you'll need:
W2 Employees (Easiest)
Standard employment income verification:
- • Most recent 2 years W2 forms
- • Most recent 30 days of pay stubs (must show YTD earnings)
- • Verbal or written employment verification from employer
- • 2 years job history (gaps >6 months require explanation)
Income calculation: If pay is consistent, use current pay × 12 months. If variable (bonuses, overtime, commissions), average past 2 years.
Self-Employed Borrowers
Self-employed income requires more documentation:
- • Personal tax returns (1040) for 2 years with all schedules
- • Business tax returns (1065, 1120, 1120S) for 2 years if >25% ownership
- • YTD profit & loss statement (current year)
- • Business license or proof of self-employment
- • CPA letter confirming self-employment (sometimes required)
Income calculation: Tax return income (after expenses/deductions) averaged over 2 years. Declining income may not be usable. Depreciation and non-cash expenses can be added back.
Other Income Types
Social Security / Disability:
Award letter + proof of receipt (bank statements). Must continue 3+ years.
Pension / Retirement:
Award letter or 1099-R forms. Must be recurring and continue 3+ years.
Rental Income:
Lease agreement + 2 years tax returns (Schedule E). Only 75% of gross rent counts.
Alimony / Child Support:
Divorce decree + proof of receipt (6+ months). Must continue 3+ years.
Part-Time / Second Job:
2-year history required. W2s, pay stubs, employer verification. Averaged over 2 years.
Property Requirements & Standards
FHA has specific property requirements to ensure the home is safe, sound, and secure. An FHA appraisal evaluates both value and condition.
Eligible Property Types
FHA-Approved
- Single-family homes (detached, semi-detached, row house)
- 2-4 unit properties (if owner-occupied)
- FHA-approved condominiums
- Townhouses
- Manufactured homes (on permanent foundation, built after 1976)
NOT FHA-Eligible
- Investment properties (non-owner occupied)
- Vacation homes / second homes
- Condos not on FHA-approved list
- Co-ops
- Properties on >10 acres (unless common in area)
FHA Appraisal Requirements
The FHA appraisal must confirm the property meets minimum property standards (MPS):
- • Safe, sound, and secure: No safety hazards, structural issues, or health risks
- • Accessible: Safe access to/from the street
- • Functional systems: Working HVAC, plumbing, electrical, roof
- • No peeling paint: Homes built before 1978 must have no peeling/chipping paint (lead hazard)
- • No standing water: Proper drainage, no flooding in basement/crawlspace
- • No wood rot: Decks, siding, window frames must be structurally sound
Common FHA Repair Requirements
Bergen County-Specific Issues: Older homes common in Bergen County may trigger these repair requirements:
- • Peeling paint on pre-1978 homes (must be scraped/repainted before closing)
- • Roof repairs (patches OK, but <3 years remaining life requires replacement)
- • Cracked/broken windows, missing screens
- • Handrail requirements for stairs >3 steps
- • GFCI outlets in kitchen/bathrooms
- • Basement moisture/water intrusion (dehumidifiers, sump pumps, waterproofing)
Who pays? Negotiate with seller during offer. Seller can make repairs, provide credit, or you can use FHA 203(k) rehab loan to fix after closing.
FHA Loan Limits Bergen County 2025
FHA loan limits vary by county and are updated annually. Bergen County is considered a high-cost area, with limits above the national baseline.
2025 FHA Loan Limits - Bergen County, NJ
What This Means for Bergen County Buyers
With median home prices in Bergen County ranging from $500K-$700K depending on town, the $644,000 FHA limit covers most properties. However, higher-priced towns like Ridgewood, Tenafly, and Alpine often exceed FHA limits.
If you exceed FHA limits: Consider conventional loans (up to $766,550 in Bergen County as conforming limit) or jumbo loans for higher amounts. VA loans also have no loan limit for qualified veterans.
Bergen County Price Examples
$500K Home (Within FHA Limit)
Purchase price: $500,000
Down payment (3.5%): $17,500
FHA base loan: $482,500
Upfront MIP (1.75%): $8,444
Total FHA loan: $490,944
✓ Well within $644K limit
$700K Home (Over FHA Limit)
Purchase price: $700,000
FHA max loan: $644,000
Required down payment: $56,000+ (8%+)
✗ Exceeds FHA limit by $56K
Better option: Conventional loan (limit $766,550) or jumbo loan
FHA Mortgage Insurance Requirements (MIP)
All FHA loans require mortgage insurance premium (MIP)—both upfront and annual. This is non-negotiable and protects the lender if you default.
Upfront MIP (UFMIP)
- • 1.75% of base loan amount
- • Charged at closing
- • Can be rolled into loan (most do this)
- • One-time fee
Example: $500K loan → $8,750 UFMIP
(Usually financed, not paid out-of-pocket)
Annual MIP
- • 0.55% of loan amount annually
- • Paid monthly (÷ 12)
- • For life of loan if <10% down
- • For 11 years if ≥10% down
Example: $500K loan → $2,750/year
= $229/month added to payment
How to Remove FHA MIP
The only way to remove MIP (if you put <10% down): Refinance to a conventional loan once you reach 20% equity.
Strategy: Wait for home appreciation or principal paydown to reach 80% LTV, then refinance to conventional. Eliminates $229/month MIP on a $500K loan = $2,748/year savings.
Learn more about mortgage insurance →Ready to Apply for an FHA Loan?
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FHA Specialist | NMLS #1577754 | Serving Bergen County, NJ
FHA Loan Expert Guidance for Bergen County
Jimmy Joseph MBA specializes in FHA loans for Bergen County buyers. We'll help you navigate credit requirements, maximize your buying power, and close on your dream home with just 3.5% down.
NMLS #1577754 | Branch NMLS #2477715
Licensed FHA Specialist serving Bergen County, NJ