In many cases, your DTI can exceed the numbers noted on the chart, as long as you have what HUD calls "compensating factors." These include things like a larger down payment (over 10%) or significant cash reserves or savings.
Where to get an FHA loan
FHA loans are available through any FHA-approved lender. The majority of large banks, credit unions, and dedicated mortgage lenders offer these loans, but you can use HUD's lender search tool to find one in your area.
Despite the low rates on FHA loans, it's still important to shop around. Get quotes from at least three to five different lenders, and make sure you're getting the best interest rate and terms for your needs.
How to apply for an FHA mortgage
To apply for an FHA loan, you'll need to fill out your chosen lender's application. Most lenders allow you to do this online, though in some cases, you may need to hop on the phone or meet in person with a loan officer.
On the loan application, you'll fill out information about your income, employment, and debts. You will also need to submit documentation to support this info, including:
- Your last two tax returns.
- W-2s and 1099s from the last two years.
- Your last two pay stubs.
- The last two months of statements for any bank accounts, retirement accounts, and investments.
- A copy of your driver's license and Social Security card.
You'll also need to agree to a credit check. The lender will pull your credit report and analyze your history and score to gauge how risky a borrower you are. This is a hard credit pull and could ding your credit score slightly.
Note: If you're buying a home with your spouse or another cobuyer, they'll need to fill out the application too, as well as submit to a credit check.
Finalizing your FHA mortgage
Once your lender has processed your application, they'll send an appraiser out to evaluate the property. This is to ensure the home is worth what you've asked to borrow for it. If the appraisal comes in lower than your offer, you'll need to make up the difference or renegotiate with the seller (lenders will only loan you up to the appraised amount).
You'll also need to buy a homeowners insurance policy for the property before you can close on the loan. Just as with your lender, you should compare options from several insurance companies, as premiums and coverage options can vary greatly.
Your loan officer may also request additional documentation to verify your income or other financial details. When this happens, be sure to act quickly to keep your loan from being delayed.
After your loan has gone through underwriting, you'll be given an official closing appointment. This is when you'll sign all the final paperwork, pay your down payment and closing costs, and get your keys to the property.
FHA loan FAQ
How much is mortgage insurance?
With FHA loans, mortgage insurance comes with both an up-front and annual fee (split across 12 months). The up-front fee for FHA mortgage insurance premiums (MIP) is 1.75% of the total loan amount. The annual fee varies based on your down payment, loan amount, and loan term but falls anywhere between 0.45% and 1.05%.
How much of a loan can I get?
The exact limits on FHA mortgage loans depend on the county you're buying a home in. For a one-unit property, the FHA loan limit ranges from $331,760 to $765,600 in the country's more expensive markets. You can use this tool to determine the limit in your area.
Are FHA loans only for first-time homebuyers?
Though many first-time homebuyers use FHA loans due to their low down payment and credit score requirements, these mortgages are available to any type of buyer -- whether it's their first purchase or fifth (or beyond that).
What happens if my home doesn't appraise for my full offer?
If your appraisal comes in low, you have a few options. You can pay the full difference out of pocket. If you don't have the funds for this, try to negotiate the seller down to the appraised value (or somewhere in between). Finally, if you have an appraisal contingency in your contract, you can pull out of the deal entirely.
The bottom line
FHA loans can be a smart way to finance a home purchase or, in some cases, an investment property. Just make sure you shop around and have all your paperwork in order before filling out your full application. This will ensure you get the best possible loan (and deal) for your needs.