FHA Loan Requirements in New York: A Complete Guide for 2023

If you’re looking to buy a home in New York and want to use an FHA loan, there are some key requirements you’ll need to meet. FHA loans are a popular mortgage option because they allow borrowers to put down as little as 3.5% and have flexible credit requirements.

But like any mortgage, FHA loans come with eligibility criteria you must satisfy to qualify In this comprehensive guide, we’ll outline the core FHA loan requirements in New York and what it takes to get approved

FHA Loan Limits in New York

The first FHA requirement is making sure the loan amount falls within FHA lending limits for your county The Department of Housing and Urban Development (HUD) sets maximum FHA loan limits each year based on local home values,

For a single-family home in New York, FHA loan limits in 2023 range from $498,257 in most counties up to $1,149,825 in high-cost areas like New York City, Long Island, and the Hudson Valley. You can look up the limits in your county here.

The FHA will insure both single-family homes and 2-4 unit multifamily properties. The max loan amount rises for two, three, and four-unit dwellings.

Key Takeaway: The first step is ensuring your FHA loan amount is below the HUD limit for your specific area and property type in NY.

Minimum FHA Credit Score Requirements

Your credit score is one of the most important FHA loan requirements. To qualify for the best terms with 3.5% down, you’ll need a minimum credit score of 580.

Here are the key credit score requirements for FHA loans in New York:

• 580+ credit score – Eligible for 3.5% downpayment
• 500-579 score – Must put 10% down
• <500 score – Typically won’t qualify

Lenders can make exceptions for certain borrowers with scores between 500 and 579. But under 500 and you usually can’t get approved.

Beyond your score, lenders will review your full credit report. Past bankruptcies, foreclosures, judgments, and high debt burdens could make it harder to qualify.

Key Takeaway: Shoot for a 580+ score when applying for an FHA loan in New York. Below 500 won’t cut it.

Downpayment Amount

Coming up with a big downpayment is one of the toughest hurdles for first-time homebuyers. FHA loans make it easier.

With a credit score of 580 or above, your minimum downpayment is just 3.5% of the purchase price. On a $300,000 home, that’s only $10,500.

Below 580, downpayment rises to 10%. Still low compared to conventional loans.

Gift funds and downpayment assistance programs can help cover this cost. The downpayment can’t come from a seller-funded grant.

Key Takeaway: Qualified borrowers only need 3.5% down on an FHA loan in New York. Have at least 10% down if your score is below 580.

Debt-to-Income Ratios

Lenders want to see you have enough income to comfortably make mortgage payments. Your “debt-to-income ratio” is a key metric they evaluate.

FHA loans require:

• Total DTI below 43%
• Mortgage DTI below 31%

For example, if your total monthly debt payments are $2,000 and gross monthly income is $5,000, your DTI is 40% ($2,000/$5,000). A qualifying ratio.

Taxes, insurance, HOA fees, credit cards, student loans, and other debts are included in DTI.

Key Takeaway: Keep total DTI below 43% and mortgage DTI below 31% to meet FHA requirements.

Work History and Income

Lenders want confidence you’ll be able to make payments long term. Expect to provide recent pay stubs, W-2s, and tax returns covering the last 2 years.

Self-employed borrowers may need to provide additional documentation such as business tax returns and bank statements.

In general, you’ll need a stable income source and two years of employment in the same line of work. Gaps are acceptable if properly explained.

Key Takeaway: Have 2 years of consistent employment income to show on your FHA loan application.

Homebuyer Education

If this is your first time purchasing a home, FHA requires you complete a brief homebuyer education course. Many are available online or in-person.

The training covers the homebuying process, budgeting, financing, and maintaining a home. Your lender can provide a list of approved agencies offering classes.

Key Takeaway: First-time buyers must take FHA-approved homebuyer education when using an FHA loan.

Cash to Close

Beyond the downpayment, you’ll need cash to cover closing costs, prepaid items, and upfront mortgage insurance. This totals 3-6% of the total loan amount.

Closing costs include lender origination fees, appraisal, credit check, taxes, title fees, and more. Prepaid costs include property taxes, homeowner’s insurance, and potentially HOA dues.

Key Takeaway: Budget for total closing costs of 3-6% when getting an FHA mortgage. The downpayment is just a fraction of cash needed.

Mortgage Insurance

FHA loans require both upfront and annual mortgage insurance:

Upfront MIP – 1.75% of the loan amount due at closing

Annual MIP – 0.45% to 1.05% of the loan amount (paid monthly)

On a $250,000 loan, you’ll pay a 1.75% upfront MIP of $4,375. Plus $93 to $218 per month.

Mortgage insurance protects the lender and makes low downpayment loans possible. Rates don’t change if you put 10% or 20% down.

Key Takeaway: All FHA loans have mandatory mortgage insurance. Both at closing and during the loan.

Home Inspection

The property must pass an FHA appraisal before closing. Appraisers inspect both interior and exterior conditions to ensure there are no major defects.

Common “health and safety” issues that may need repair include:

• Leaky roofs
• Cracked foundations
• Faulty electrical systems
• Missing handrails
• Broken windows

If repairs are required, they must be fully completed before closing. FHA will not finance homes with unaddressed hazards.

Key Takeaway: Properties must pass an FHA appraisal and health/safety inspection before closing.

Owner Occupancy

FHA loans require you live in the home as your primary residence. Second homes and investment properties don’t qualify. You should move into the property within 60 days of closing.

With 2-4 unit properties, you have to occupy one of the units at minimum. The other units can be rented out to generate rental income.

Key Takeaway: FHA borrowers must use the home as their primary residence and move in within 60 days of purchase.

Loan Purpose

You can use an FHA loan to:

• Purchase a primary residence
• Refinance an existing FHA loan
• Renovate or repair a home with an FHA 203(k) rehab loan

FHA loans cannot be used to buy vacation homes or rental properties as an investment. You must live in the home.

Key Takeaway: FHA loans are only for primary residences, not investment or vacation properties.

Multiple FHA Loans

It is possible to have two FHA loans under certain situations:

1. You inherited a FHA property and are keeping it as a rental.

2. You previously lived in a FHA home and now need to move for a job transfer, marriage, divorce, etc.

Outside these scenarios, multiple FHA mortgages for primary residences are not allowed. FHA requires you to sell or refinance the old home before getting a new FHA mortgage.

Key Takeaway: In most cases you can only have one FHA loan at a time. Two are only permitted under specific circumstances.

Non-Occupying Co-Borrowers

Non-occupying co-borrowers are allowed on FHA loans. This can be a relative who doesn’t live with you but helps qualify by contributing income, assets, and credit.

Up to four people can be on the mortgage. But anyone not living in the home must still be a close family member, such as a:

• Parent
• Sibling
• Child
• Grandparent

Key Takeaway: Close relatives can provide financial backing on an FHA loan without occupying the property.

Student Loan Debt

FHA does not have strict student loan debt-to-income rules. Monthly payments are factored into your overall debt-to-income ratio.

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