FHA Loan Requirements in Louisiana: A Complete Guide for 2023

Getting an FHA loan in Louisiana can be a great way for first-time homebuyers to purchase a home with a low down payment. FHA loans are insured by the Federal Housing Administration and offer flexible credit and underwriting standards. However, there are certain requirements borrowers need to meet to qualify for an FHA mortgage in Louisiana.

In this comprehensive guide we’ll cover everything you need to know about FHA loan requirements in Louisiana, including

• FHA Loan Limits in Louisiana
• Minimum Credit Score
• Down Payment Rules
• Debt-to-Income Ratio Limits
• Mortgage Insurance Requirements
• Home Appraisal Criteria
• Occupancy and Property Type Rules
• Income and Employment Verification
• Louisiana First-Time Homebuyer Programs

Understanding these key eligibility factors will help you determine if an FHA mortgage is right for your home buying needs and how to improve your chances of getting approved.

FHA Loan Limits in Louisiana

The first thing to know is that FHA loans have loan limits – the maximum amount you can borrow with an FHA-insured mortgage. The 2023 statewide FHA loan limit for a single-family home in Louisiana is $362,900.

However, FHA loan limits can vary by county due to differences in home prices across the state. In higher cost areas like New Orleans, the FHA limit is much higher at $567,000. You can look up the specific FHA loan limits by county in Louisiana to see how much you may be able to borrow.

FHA also has higher loan limits for 2-4 unit properties that you plan to live in. For example, the 2023 FHA loan limit for a duplex is $463,200 and $569640 for a 4-plex.

Minimum Credit Score

To get approved for an FHA loan in Louisiana, you’ll need a minimum credit score of 580 if you want to make the minimum required down payment of 3.5% With a lower score between 500-579, you can still potentially get approved but will have to put down at least 10%

It’s a good idea to check your credit reports from all three bureaus and work on improving your score above 580 before applying by paying down balances and disputing any errors. The higher your score, the better your chances of approval and the lower interest rate lenders can offer.

Down Payment Rules

One of the biggest advantages of an FHA loan in Louisiana is the low down payment requirement. With a credit score of 580 or higher, you only need to put down 3.5% of the purchase price. On a $250,000 home, that’s just $8,750.

The down payment can come from your personal savings, gifts or grants. You can also use down payment assistance programs offered in Louisiana by non-profits and state/local governments.

Keep in mind, your total closing costs will be more than just the down payment. Plan for about 3-5% of the mortgage amount to cover origination fees, appraisal, insurance, prepaids, and more closing expenses.

Debt-to-Income Ratio Limits

Lenders will look at your total monthly debt payments in relation to your gross monthly income, also known as your debt-to-income (DTI) ratio. To qualify for an FHA loan in Louisiana, your DTI generally can’t exceed 43%.

That means your total monthly debt payments, including the new mortgage payment, property taxes, insurance, credit cards, student loans, car loans, child support, and other installment debts cannot equal more than 43% of your total monthly pre-tax income.

Some lenders may approve DTIs up to 50% if you have a strong credit profile, large down payment or reserves. But it’s best to get your ratio as low as possible by paying down balances before applying.

Mortgage Insurance Requirements

With an FHA loan, you’ll need to pay for mortgage insurance, which protects the lender from losses if you default. There are two types:

• Upfront Mortgage Insurance Premium (UFMIP) – This is 1.75% of the loan amount and can be financed into your mortgage. On a $250,000 loan, it would add $4,375 to the total amount borrowed.

• Annual Mortgage Insurance Premium (MIP) – The ongoing annual premium is between 0.45% – 1.05% of the loan amount, added to the monthly payments. At the minimum 0.45% rate, it would add about $97 each month on a $250,000 loan.

You must pay the annual MIP for the life of the loan unless you refinance or reach 78% loan-to-value either through paydown or appreciation.

Home Appraisal Criteria

The property you purchase must go through an FHA appraisal by a certified appraiser. This involves both a valuation to ensure the home’s value supports the sales price as well as a physical inspection.

To be eligible, the appraisal must show the home is “safe, sound, and secure.” The lender will review the appraisal report to make sure there are no major defects, issues or required repairs identified that could affect mortgage approval.

Occupancy and Property Type Rules

With an FHA loan, you must occupy the property as your primary residence within 60 days of closing and intend to live there for at least a year.

FHA loans can be used to purchase single-family homes, duplexes, triplexes, fourplexes, condos and even manufactured homes. You can also use FHA financing to purchase a fixer-upper home or foreclosure property.

Investment properties or vacation homes are not eligible. And if you’re buying a multi-unit property, you must plan to live in one of the units.

Income and Employment Verification

Lenders will closely look at your income, employment history and assets to determine if you have enough monthly income to repay the mortgage. Here are some key points on FHA income documentation requirements:

• Minimum two years employment history – You must show at least two years of steady employment in the same line of work. Gaps or frequent job changes may need to be explained.

• Verbal VOE – Lenders will conduct a verbal verification of employment to confirm your current job status close to closing

• Pay stubs – Expect to provide 30 days of your most recent pay stubs.

• Tax returns – Two years of W-2s and tax returns are commonly required. Self-employed borrowers may need to provide two years of returns including all schedules.

• Asset statements – You’ll need to verify funds available for the down payment and closing costs as well as reserves. Asset statements showing two months of bank/investment account activity are typically needed.

Providing complete, accurate information upfront can help streamline the verification and underwriting process.

Louisiana First-Time Homebuyer Programs

Louisiana has a few different programs that can help first-time buyers afford the downpayment and closing costs:

• Louisiana First-Time Homebuyer Program – Offers below market rate 30 year fixed rate FHA, VA or USDA mortgages along with down payment assistance up to 5% of the purchase price. Learn more.

• Louisiana Housing Corporation – Provides first mortgage financing and grants covering closing costs and prepaid items to eligible buyers. Check availability by parish. Learn more.

• Federal Home Loan Bank Homeownership Set-aside Programs – Offered through participating lenders, provides grants for down payment and closing costs. Learn more.

Be sure to discuss programs you may qualify for with your lender and real estate agent.

Next Steps

We’ve covered the key FHA loan requirements and guidelines that apply for Louisiana homebuyers in 2023. The great news is FHA loans offer more flexible credit standards than conventional mortgages, making them more accessible if your finances aren’t perfect.

Next, start pre-qualifying with some recommended FHA lenders in Louisiana to determine how much home you can afford. Get pre-approved before making an offer so you can shop confidently knowing your price range and loan eligibility.

Use this checklist to ensure you have everything needed for a smooth origination process:

• Review credit reports and scores
• Pay down balances to lower DTI
• Gather income/employment documentation
• Research downpayment assistance programs
• Get pre-qualified/pre-approved
• Shop for homes within loan limits

With some preparation and planning, you can be well on your way to FHA loan approval and buying your first home in Louisiana! Let us know if you have any other questions.