For FHA loans, you can exclude installment debts (like car loans) from your debt-to-income (DTI) ratio if they have 10 or fewer payments remaining AND the monthly payment is 5% or less of your gross monthly income. Payments cannot be voluntarily paid down to meet this 10-month requirement, and this rule does not typically apply to revolving debt like credit cards.
For Loans manually underwritten, closed-end debts do not have to be included in the qualifying ratio, if they will be paid off within 10 months from the date of closing and the cumulative payments of all such debts are less than or equal to 5% of the borrower's gross monthly income.
An FHA typically requires a DTI ratio of 43% or less, though some lenders may allow up to 50% depending on certain factors. To calculate your DTI, add all monthly debt payments and divide by your gross monthly income. For example, if your total monthly debt is $2,000 and your gross income is $5,000, your DTI is 40%.
The FHA 85% rule refers to a past guideline for cash-out refinances limiting the loan to 85% Loan-to-Value (LTV) and a specific rule for identity-of-interest transactions (like buying from family) where borrowers couldn't finance more than 85% of the home's value unless exceptions applied, such as renting from the family member for at least six months prior. While the general cash-out LTV is now 80%, the 85% rule still applies to certain related-party sales, requiring a 15% down payment unless an exception is met, notes FHA.com.
FHA loan disqualifications often stem from poor credit (below 500), high debt-to-income (DTI) ratios (often above 43%), unstable employment, insufficient funds for down payment/closing costs, or issues with the property itself, like hazards or severe disrepair, plus owing back federal debts or having delinquent student loans. Clearing federal debt, establishing stable income, and ensuring the home meets safety standards are key to overcoming these hurdles, notes FHA.com and The Home Loan Expert.
Common denial reasons include credit score issues, high debt-to-income ratio, and property appraisal challenges. FHA loans require a minimum 3.5% down payment for credit scores of 580 or above. Lower scores require a larger down payment. The median credit score for FHA loans is 673, indicating a “good” credit profile.
Uninsurable property is a home that is not eligible for insurance through the Federal Housing Administration (FHA) because it needs extensive repairs. An uninsurable property is typically ineligible for a mortgage through the FHA.
FHA loans are insured by the Federal Housing Administration and may have more lenient qualifications than conventional loans. FHA loan limits vary by location, but in 2026, they're generally between $541,287 and $1,249,125 for single-family homes. You can find FHA loan limits for your area on the HUD website.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Mortgage lenders look at the big picture of your financial position. If you can afford to repay your agreed debt payments AND have money left over, this could improve your chances of getting approved for a mortgage. Debt does affect how much you can borrow - there's no getting around that.
How much debt can I have and still get a mortgage? This varies by lender and type of loan. Each lender has their own view on what is a good DTI. However, most lenders want your monthly debts to be 43% or less of your gross monthly income, which is your income before taxes.
A Federal Housing Administration (FHA) loan might be a good option if you have debt or a lower credit score. You might even be able to get an FHA loan with a bankruptcy or other financial issue on your record.
The main cons of FHA loans are mandatory Mortgage Insurance Premiums (MIP) – both upfront and annual, which can last for the life of the loan or 11 years depending on down payment. Other downsides include strict property standards, lower loan limits in high-cost areas, higher long-term costs (especially with good credit), and limitations to primary residences only, which can make them less appealing to sellers and buyers with excellent credit seeking better conventional loan terms.
The 2026 FHA loan limits range from $541,287 for a single-family home in the most affordable counties to $1,249,125 in the most expensive. Homebuyers in certain areas, such as Alaska, Guam, Hawaii, and the Virgin Islands, may be able to borrow more than the limits for other typical, high-cost areas.
FHA changes in 2025 focus on streamlining appraisals, updating loss mitigation/servicing rules (effective Oct 1), revising residency requirements for non-permanent residents (effective May 25), and setting higher loan limits (baseline $524,225 for 2025), while also phasing out some COVID-era flexibilities and rescinding certain appraisal forms/protocols to reduce lender burdens and expand property eligibility, impacting both new loans and existing homeowners in default.
The 80% rule in homeowners insurance requires you to insure your home for at least 80% of its total replacement cost to receive full coverage for partial losses, preventing underinsurance and significant out-of-pocket costs if damaged; if you fall below this threshold, your insurer pays a proportionate amount of the claim, not the full repair cost. This rule ensures you can rebuild, factoring in current material and labor costs, but excludes land value.
Conventional Loans—A non-government insured loan that can be used with a second home purchase or an investment. Unlike FHA loans, conventional loans can require a higher credit score (often a minimum of 640), but they can have some major advantages for you.
Final thoughts for buyers
While FHA loans can provide increased accessibility for many homebuyers, they may not be the best fit for those looking to purchase a non-primary residence, properties that don't meet FHA inspection requirements, or homes that exceed loan limits.
Cracks in the foundation, signs of water damage, or evidence of settling can raise red flags. These issues often require a structural engineer's inspection, which can add time and cost.