Simplifying Homes – Your Guide to Real Estate

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Debt-Service-Coverage-Ratio (DSCR)

Debt-Service-Coverage-Ratio (DSCR) Home Loans

Learn everything you need to know about DSCR mortgages.

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01

Low Down Payment & Flexible Credit

Minimum down payment is 3.5% with a 580+ credit score. More lenient on credit history, debt-to-income ratios, and past financial issues (like bankruptcy or foreclosure)

02

Mortgage Insurance Premium (MIP)

Upfront MIP (usually 1.75% of loan amount) paid at closing or rolled into loan. Annual MIP (paid monthly) is required for the life of the loan if the down payment is less than 10%monthly payment and cost over time.

03

Government-Backed Loan Benefits & Limits

FHA loans are insured by the Federal Housing Administration, giving lenders confidence to approve riskier borrowers. Loan limits vary by county and are generally lower than conventional. Typically used for primary residences only—not eligible for second homes or investment properties

Breaking it all down


FHA mortgages are government-backed loans insured by the Federal Housing Administration, designed to help borrowers with lower credit scores or limited savings qualify for homeownership. They allow for a down payment as low as 3.5% with a credit score of 580 or higher, and even borrowers with scores between 500–579 may qualify with a 10% down payment. FHA loans are more forgiving of past financial issues, such as bankruptcies or foreclosures, and they allow for higher debt-to-income ratios than conventional loans. This makes them especially popular with first-time homebuyers or those rebuilding their credit.


A key trade-off with FHA loans is the required mortgage insurance. Borrowers must pay both an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount and an annual mortgage insurance premium (MIP) that is included in the monthly payment. If the borrower puts down less than 10%, MIP is required for the life of the loan, unlike conventional PMI, which can be removed with enough equity. FHA loans also have county-specific loan limits and can only be used for primary residences, not for second homes or investment properties. While they’re more accessible, FHA loans can be more expensive over time due to the ongoing insurance costs.

Lower credit score requirements

FHA loans are designed for borrowers with imperfect or limited credit histories. You can qualify with a credit score as low as 580 for the standard 3.5% down payment, and even as low as 500 with a 10% down payment. This flexibility makes FHA loans one of the most accessible options for people who might not meet conventional loan credit standards (typically 620+).

Low down payment + Down Payment Assistance (DPA) options

With just a 3.5% down payment (on a $300,000 home, that’s only $10,500), FHA loans open the door to homeownership for buyers who haven’t had time to save a large amount. Additionally, gift funds from family or grants from DPA programs are often allowed to cover some or all of the upfront costs, making it easier for first-time buyers to get started.

FHA interest rates

FHA loans often come with competitive or slightly lower interest rates than conventional loans for borrowers with lower credit scores. That’s because they’re government-backed, which lowers the lender’s risk. However, the required mortgage insurance premiums (MIP) can offset that advantage, meaning the total monthly cost may still be higher than a conventional loan for a well-qualified borrower. For buyers with weaker credit, though, FHA loans typically offer a more affordable financing path than conventional alternatives.

~17%

of financed home purchases in 2024 were with FHA mortgages

620-680

average credit score of a FHA mortgage borrower

*580 minimum for 3.5% down
*500 minimum with 10% down

45-50 days

average time to close with an FHA mortgage

*can close much sooner if needed

4-5%

average down payment in the USA with an FHA mortgage

*with DPA options borrowers can put 0% down

Documents to prepare for an FHA loan

This list is not comprehensive or all-encompassing. Once an application is received, a specific and detailed list will be provided. Having these documents ready up front can significantly speed up the process and help avoid delays during underwriting.

Key documents

  • Personal Identification
    • Government-issued photo ID (driver’s license or passport)
    • Social Security number
  • Income Documentation
    • Pay stubs (typically last 30 days)
    • W-2 forms (last 2 years)
    • Tax returns (last 2 years, especially if self-employed)
    • Proof of additional income (e.g., bonuses, alimony, child support—if you want it considered)
    • Profit & Loss statement(s) (if self-employed or gig work)
  • Employment Verification
    • Employer name, address, and contact info
    • Employment history for the last 2 years
    • Written verification may be requested from employers
  • Asset & Bank Statements
    • Bank statements (last 2–3 months) for all checking and savings accounts
    • Documentation of large deposits (to verify they’re not new debt)
    • Retirement and investment account statements (if used for reserves or down payment)
  • Debt & Liability Info
    • Monthly debt payments (auto loans, student loans, credit cards, etc.)
    • Documentation of current mortgage or rent (if applicable)
    • Divorce decree (if applicable) to verify alimony/child support obligations
  • Property-Related Documents (once under contract)
    • Purchase agreement/contract
    • Real estate disclosures
    • Contact information for your real estate agent and title company
  • FHA-Specific Items
    • Signed FHA loan application (1003 form)
    • FHA Amendatory Clause and Real Estate Certification
    • Gift letter (if using gift funds for down payment)
    • Documentation from donor showing funds and transfer

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