Last Updated: February 14, 2025
What Is FHA?
The Federal Housing Administration (FHA) was established in 1934, as a way to help increase U.S. homeownership post the ”Great Depression”. At the time, only 4 in 10 households owned homes, and most people were renting. Not a big surprise, since you couldn’t get a loan without a 50% down payment.
In 1965, FHA became a part of the Department of Housing and Urban Development (HUD).
FHA is the only government agency that operates entirely from self-generated income, and costs the taxpayers nothing – it is funded by the mortgage insurance premiums paid by FHA homeowners.
Overall, FHA mortgage loans are great for either borrowers with credit issues and/or that carry more debt than allowed by a Conventional or USDA loan in Utah.
Please note that FHA does not provide the actual funds on your mortgage loan. FHA only guarantees the mortgage in case of borrower default, so that lenders can extend credit with greater confidence.
You make your 3.5% minimum required down payment – FHA will insure the rest.
Utah FHA Mortgage Loan Requirements – At A Glance
An FHA mortgage works like any other mortgage loan, with some key guideline differences that may make it more appealing for certain borrowers. Here’s a quick glance at credit score requirements, down payment, debt to income ratios and mortgage insurance.
Credit
Credit scores as low as 580 can get approved for a Utah FHA mortgage. Some lenders might take credit scores under 580 with at least a 10% down payment and significant compensating factors.
Down Payment
The down payment required on an FHA mortgage loan is 3.5% of the purchase price. The most common source is a borrower’s own funds, their retirement account, or a gift from a family member.
Debt to Income
The higher the credit score, the higher the approved debt to income ratios are on your Utah FHA mortgage.
Credit scores of 640 and over can usually have a housing payment just under 50% of the gross qualifying income. The total overall monthly debt obligations can add up to just under 57% of the gross income.
For credit scores under 640, or derogatory credit remarks present, additional restrictions apply. These restrictions are determined by the automated underwriting system upon review of a a complete application.
Feel free to contact me if you have questions on your specific scenario, or need help calculating your debt to income. [email protected]
Mortgage Insurance
In order to guarantee your loan, FHA mortgages requires the payment of two types of mortgage insurance. These funds are then pooled, and go into a fund that reimburses lenders for FHA mortgages that borrowers default on.
- The Up Front FHA Mortgage Insurance Premium is 1.75% of the loan balance
For example, on a $500,000 home in Utah, your upfront FHA mortgage insurance would be $8,750. This cost normally gets rolled into your new loan amount, unless you wanted to pay it up front, alongside your down payment and closing costs.
- The Annual FHA Mortgage Insurance Premium is paid monthly with your mortgage payment
This premium depends on your mortgage loan amount, loan term, and how much of a down payment you make. The standard rates are as follows:
- 30-year loan terms with less than 5% down: 0.55% of the loan amount
- 30-year loan terms with more than 5% down: 0.50% of the loan amount
- 15-year loan terms less than 10% down: 0.40% of the loan amount
- 15-year loan terms with 10% down or more: 0.45 % of the loan amount
For all FHA mortgages issued after June 1st, 2013:
- If the loan to value is greater than 90%, then the FHA mortgage insurance is in place for the life of the loan
- If the loan to value is 90% or less than the FHA mortgage insurance is in place for 11 years.
This in in contrast with conventional loans, which only require private mortgage insurance for borrowers that don’t put a 20% down payment on their mortgage. Even so, private mortgage insurance can be removed once certain criteria is met.
The main drawbacks to using an Utah FHA mortgage loan are:
- The FHA mortgage insurance can be more expensive than other loan programs, especially for higher credit scores
- FHA has pre-determined mortgage loan limits, depending in which Utah county you’re looking to purchase in.
What Are The Utah FHA Mortgage Loan Limits?
The official Utah FHA mortgage loan limits are posted on the HUD website, and they vary across states and counties. These numbers apply to the FHA base loan amount only, without consideration to any upfront FHA mortgage insurance fee if it’s being rolled in.
These Utah FHA mortgage loan limits are revised each year. As of November 2024, the limit for a Utah 1-unit home is as follows, depending on where it’s located:
- 524,225 in Beaver, Cache, Carbon, Daggett, Duchesne, Emery, Garfield, Iron, Kane, Millard, Piute, San Juan, Sanpete, Sevier and Uintah Counties
- $579,600 in Rich County
- $593,400 in Washington County
- $601,450 in Utah and Juab Counties
- $629,050 in Salt Lake and Tooele Counties
- $709,550 in Grand County
- $744,050 in Box Elder, Davis, Morgan and Weber Counties
- $997,050 in Wayne County
- $1,163,800 in Wasatch and Summit Counties.
If you need a higher loan amount, you might want to look into applying for a conventional loan instead.
What Properties Are Eligible For A Utah FHA Mortgage Loan?
Properties that are eligible for an FHA mortgage loan in Utah are:
- attached and detached single family residences (SFRs)
- 2-4 unit dwellings
- PUDs (ex: townhomes)
- FHA approved condo projects – individual condo unit approvals are also possible, even if the entire complex may not be – a mortgage professional can guide you through the process once you’re under contract.
- modular housing is acceptable; modular housing is prefabricated, panelized or sectional housing that assumes the characteristics of a site built home, meets all local and state building codes, is permanently affixed to the land and is legally classified as real estate.
- manufactured houses are allowed on FHA mortgage loans, as long as the home was constructed on or after June 15, 1976, in compliance with the Federal Manufactured Home Construction and Safety Standards. Additional requirements apply to manufactured homes.
MAXIMUM ACREAGE – The maximum acreage for FHA properties is usually 40 acres.
CONDITION OF PROPERTY – All properties must be habitable and all appliances, plumbing, electrical, etc. must be functional and in good working condition.
- A stove is not required in the case where a stand-alone appliance can be placed. If the kitchen has built in appliances, a stove/oven must be installed. The lack of a stove or oven cannot pose any health or safety hazard, otherwise installation is required prior to closing.
- Properties must be in marketable condition at the time of closing. “Marketable” means the property could be sold in its current condition if necessary. Properties with kitchen/bath that are currently being remodeled, or properties missing flooring (bare, unfinished cement floor) are not considered in marketable condition and are not acceptable. These deficiencies must be completed prior to closing
OCCUPANCY TYPES – Only primary residences are allowed to be purchased with a Utah FHA mortgage loan. The borrower(s) must occupy the property within 60 days after closing, and must intend to continuously occupy the property for one year.
* Properties are not FHA eligible if the resale date is less than 90 days following acquisition by the seller, unless certain exemptions are met (such as a title change due to inheritance). Loans with resale dates of 90 days up to 180 days may require an additional appraisal.
1 TO 4 UNIT PROPERTIES – Regardless of the number of units, the minimum downpayment required by an FHA loan is only 3.5% of your purchase price.
This feature makes the FHA mortgage loan extremely attractive for borrowers who wish to produce side income by renting out any additional units. Keep in mind that FHA mortgage loans are only allowed on primary residences, so occupying one unit as your main residence is a must.
If you’re looking to purchase or refinance a triplex or 4-plex, make sure you have enough funds saved up to cover 3 months of full mortgage payments on the property after the loan closes – it will be a requirement called “reserves”. You don’t have to use the funds for anything, you just need to show you have a safety net in case anything happens. Retirement and investment accounts can satisfy this requirement.
Can I Buy More Than One Property Using A Utah FHA Mortgage Loan?
FHA can insure more than 1 property per borrower if the following exceptions are met:
RELOCATION – If you are relocating in an area that’s not within reasonable commuting distance from your current residence, you may obtain another FHA insured mortgage. This can be done without needing to sell your current FHA insured property. Reasonable commuting distance is generally regarded as 50 miles or more.
FAMILY SIZE INCREASE – You may be permitted to obtain another FHA insured mortgage loan if the number of legal dependents has increased to where your present home no longer meets your family’s needs. However, the outstanding balance on your initial FHA insured property must be at 75% loan to value or less (excluding the upfront mortgage insurance premium that was rolled in).
VACATING JOINTLY OWNED PROPERTY – In the case of a divorce for example.
NON-OCCUPYING CO-BORROWER – If you co-signed on an FHA mortgage loan for a family member, but you do not reside on that property, you can obtain your own FHA insured loan. The reverse also applies, meaning you can co-sign as a non-occupant co-borrower to help someone obtain an FHA mortgage loan even if your current mortgage is FHA.
Utah FHA Loan Requirements: Everything You Need to Qualify
This section will cover some of the most common topics in detail. You’ll learn how derogatory credit affects your Utah FHA mortgage loan. What the qualifying ratios are, and how to use gift funds. I’ll also cover interested party contributions.
If there is something else you’d like to know about, please e-mail your questions to [email protected]
Credit History
*If you currently have delinquent accounts, note that a clean, on time 12 months payment history is required to show creditworthiness. Reach out to me by email and I’ll advise on the best course of action.
Foreclosure / Deed-in-lieu of foreclosure
A 3 year waiting period must be met, measured from the date of the title transfer to the FHA case number assignment (which your mortgage loan officer will order).
- If the foreclosed property was a Conventional mortgage, the seasoning period begins the date the foreclosure deed was signed and notarized removing the owner from title.
- If the foreclosed property was Government Insured (FHA, VA or USDA mortgage loan), the seasoning requirement begins on the date that the claim was actually paid (the search is done through the CAIVRS system not directly available to the public, but I can help with that)
Borrowers with foreclosure/deed-in-lieu within 3 years of case number assignment that was due to documented extenuating circumstances may be eligible if the borrower has re-established good credit since the foreclosure.
If the foreclosure was included in the bankruptcy, the foreclosure waiting period still applies. FHA treats the foreclosure and BK independently, not as a single event – unlike Conventional mortgages.
Bankruptcy
Bankruptcy waiting periods are measured from the event end date to the FHA case number assignment date.
Chapter 7 Bankruptcy – eligible 24 months after the discharge date, on the condition that good credit has been re-established. Less than 24 months, but no less than 12 is also acceptable if extreme circumstances can be proven, and not likely to re-occur (it requires a lender willing to do a manual underwrite)
You can find your bankruptcy discharge date and even obtain a copy of the paperwork you filed by using visiting the Utah Court PACER system.
Chapter 13 Bankruptcy – eligible after 12 months in the active Utah bankruptcy repayment plan, provided:
- the borrower has made ALL required payments on time (no exceptions)
- The borrower has received written permission from the bankruptcy court to enter into a mortgage transaction
- The event that led to the bankruptcy is not likely to recur
- Borrowers must have re-established credit or has not incurred any new debts
Short Sale
There is a 3 year waiting measured from the date of the title transfer, unless the borrower can document extenuating circumstance that are unlikely to re-occur. A review of the credit report must indicate satisfactory credit prior to the extenuating circumstances that caused the default.
Modified / Restructured Loans
A rate/term refinance of a modified/restructured loan is eligible provided that the loan is not currently delinquent and there is no history of late payments in the past 12 months. The current lender must also provide a letter stating they will not file a deficiency judgement.
Collections / Charge-Offs
All medical collections and charge off accounts are disregarded and will not impact your FHA mortgage loan approval odds.
Collection accounts with balances adding up to more than $2,000 may be required to be paid at closing, or be in a repayment plan.
If a repayment plan is in place, the minimum payment will be included in the debt-to-income ratios (an underwriter may calculate the monthly payment due using 5% of the outstanding loan balance, or the actual documented payment).
Judgments
Judgements have to be paid off unless the borrower has an installment repayment agreement in place with the creditor. Documentation showing 3 months of scheduled on-time payments must be provided, along with a letter of explanation for the judgment.
Delinquent Federal tax debt
May remain unpaid, provided a valid payment plan is in place, with at least 3 months of on-time payment made on it. Any such payments must also be included in the debt to income ratios.
Late mortgage payments/rent payments
Current mortgages (including second mortgages if applicable) must have a history of on-time payments for the past 12 months. 12 months rental payment history verification is often required for credit scores under 640.
Extenuating circumstances
Waiting periods for significant derogatory credit events may be waived if the event was due to an extenuating circumstance. FHA considers the “serious illness or death of a wage earner” as an extenuating circumstance.
Divorce or the inability to sell a home due to job transfer or relocation IS NOT considered an extenuating circumstance.
Delinquent obligations that were awarded to an ex-spouse through a legal divorce decree do not need to be considered, and may be ignored provided that the debts were current at the time of divorce AND the divorce decree clearly identifies the debt being assigned to the ex-spouse
Income
Re-entering the workplace:
If a borrower has an employment gap larger than 6 months in the past two years, then they must be at their current job for at least 6 months.
If the borrower is returning to work after an extended absence, his/her income is considered effective if they have been employed at that job for more than 6 months prior, or if the prolonged absence was due to raising children.
Using rental income to qualify
If the property providing rental income was acquired since the last tax return filing, a current lease or rental agreement must be provided. The appraiser can also perform a rental market analysis and include it in the appraisal report. Only 75% of that rental amount will be used to qualify you, the rest is a safety net for vacancies and unexpected expenses.
If the rental income source is from additional units on a multi-unit property where the borrowers reside in one of the units – net rental income may be added to the effective income, but cannot be used to offset the actual mortgage payment.
If rental income is reflected on the prior two-year tax returns (Schedule E), the effective income will be calculated by adding back any depreciation, mortgage interest, taxes, insurance and any HOA dues to the net income or loss. The result is divided by 24 months, or by the actual number of months since the property was purchased (if less than 2 years have passed).
ACCESSORY DWELLING UNIT (ADU)
Rental income received from an accessory dwelling unit (ADU) may be used as qualifying income on a Utah FHA mortgage loan as long as:
- the appraiser is able to find comparable fair market rents
- the amount of rental income used does not exceed 30% of the total income used to qualify a borrower.
BOARDER/ROOMMATE INCOME
Boarder/roommate income is allowed if there is a 12 month history of such income being received. Rental income from boarders is permitted whether the borrower currently rents or owns the Utah dwelling unit.
Documentation required:
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rental history of the previous 12 months
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rental income received from boarders for at least 9 of the most recent 12 months in the form of most recent tax returns, bank statements, cancelled checks, or deposit slips showing rental payments received
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the boarder’s address must be the same as the borrower’s address
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A copy of the executed written lease agreement documenting the boarding terms and the boarder’s intent to continue boarding with the borrower.
- boarder income cannot account for more than 30% of the borrower’s total qualifying income.
RENTAL INCOME FROM THE DEPARTING RESIDENCE
Buying a new home, but want to keep the old and rent it out?
If you have limited or no history of receiving rental income, FHA requires an appraisal (does not have to be an FHA appraisal) on the departing residence to show at least 25% equity. This is a specific FHA mortgage loan requirement that other loan types don’t have. If this is a dealbreaker, consider a conventional loan instead.
The appraiser will also need to prepare a comparable rent schedule to determine the fair market rent value. Only 75% of that amount can be used to help you qualify for a Utah FHA mortgage loan.
In order to use rental income, you’ll need:
- a signed lease agreement with at least a 1 year term will be needed
- evidence of the first month’s payment or security deposit from a tenant that is not a family member or an interested party to the transaction.
The new residence must also be more than 100 miles from the old – this is also a very FHA specific guideline that conventional loans don’t have. There is one exception:
- if the departing primary residence has already been vacated by the borrower and rented for a minimum of 6 months prior to the case number assignment, the 100 mile rule will not apply.
Variable income: overtime, commission, bonuses, and tips
A two-year history of receiving this type of income is usually preferred, but as little as 1 year can be used as long as the income is reasonably likely to continue.
Part-time income
Part-time employment refers to employment that is not the borrower’s primary employment and is generally performed for less than 40 hours per week.
A two-year history of uninterrupted receipt is required. If a pay increase can be documented, the most recent 12 months average of hours worked at the current pay rate can be used.
Self-employment income
Self-employed borrowers are individuals who have 25% or greater ownership interest in a business. FHA mortgages consider income from self-employed borrowers to be stable if the borrower has been self-employed for 2 or more years.
Please contact me at [email protected] if you have questions on a specific situation.
Borrowers with 1 to 2 years of self-employment history may be eligible provided they can document previous 2 years of successful employment in the line of work in which they are currently self employed.
Annual earnings that are stable or increasing are acceptable, while businesses that show a significant decline in income are not acceptable, even if the current income and debt ratios meet FHA mortgage loan guidelines.
Debt to income ratios
Lenders that fund FHA loans generally follow the findings of the automated underwriting system (AUS), which evaluates all the factors of a loan application (credit, income, assets, employment history)
I’ve seen approvals with housing payments just under 50% of the gross monthly qualifying income, and total debt of 56.99% of the same gross monthly income.
Lower credit scores or scenarios that require a manual underwrite may have maximum debt to income limits that are stricter, and higher down payment requirements.
Non-Occupant Co-Borrowers
A non-occupant borrower is someone who owns the property and is liable for the debt, but does not live in the property.
Transactions with no-occupying co-borrowers require a 25% down payment, unless the co-borrower is a family member, and the property is a 1 unit home.
A non-occupying co-borrower can income qualify even if the occupying borrower has no income or no qualifying income – as long as the non-occupant co-borrower is a family member.
FHA defines family members as individuals related to the borrower by blood, marriage, adoption, or legal guardianship. Cousins are not considered a family member by FHA.
Gift funds
Gifts refer to the contribution of funds or equity with no expectation of repayment. The transfer must be properly documented as coming from a legal source (cash is not an acceptable source), and from an allowed donor.
On FHA mortgage loans, the entire borrower downpayment can come from a git.
Gifts may be provided by:
- a family member
- the borrower’s employer or labor union
- a close friend with a clearly defined and documented interest in the borrower
- a charitable organization
- a governmental agency or public Entity that has a program providing homeownership assistance
GIFTED EQUITY is when the seller gifts part of the equity to a family member buyer to cover his/her down payment and/or closing costs. Gifted equity is allowed only from family members, on a non-arms length transaction.
Contact me for details on how to structure a transaction with gifted equity in Utah – [email protected]
Non-arm’s length transactions
A non-arms length transaction or Identity of Interest transaction is defined as a direct relationship between any of the parties to the transaction, including: buyer, seller, employer, lender, broker, appraiser etc.
The minimum down payment required is 15%, with the following exceptions:
- The subject property is currently occupied by a family member of the borrower
- The borrower has been renting the subject property from the family member for at least 6 months and can provide written evidence
- An employee of the builder is purchasing a new home or model home as a principal residence
- Corporate transfer – the 85% restriction may be exceeded if a corporation transfers an employee to another location, purchases the employee’s house, and sells the house to another employee
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Tenant Purchase- the 85% restriction may be exceeded if the current tenant purchases the property where the tenant has rented the property for at least six months immediately predating the sales contract. A lease or other written evidence to verify tenancy and occupancy is required.
A non-arms length transaction may not be used to bail out a family member – or any other owner with an established relationship to the borrower – from a delinquent FHA mortgage loan.
Interested party contributions
FHA mortgage loans define interested parties as sellers, real estate agents, developers, lender’s, loan officers, and other parties with an interest in the transaction.
Interested party contributions (IPC) are limited to 6% of the sales price or appraised value and must be documented on the sales contract.
Is The Utah FHA Mortgage Loan Right For You?
If you have less then perfect credit, need to exceed the 45% debt to income ratio, or want to purchase a multi-unit property with a low 3.5% down payment, then the answer is probably YES.
Credit scores under 680 will benefit from a lower monthly mortgage insurance payment with a Utah FHA mortgage loan, vs a Conventional loan with private mortgage insurance.
Great alternatives to an FHA mortgage loan:
VA Military loans or USDA loans offer 100% financing and lower monthly insurance (no insurance on VA loans).
Conventional loans now also come with a 3% down payment option, and in some cases, with reduced private mortgage insurance.
FHA mortgage loans have other good things going for them, such as a lower, government interest rate, and easy streamline refinance option. While FHA mortgage loans add the cost of the upfront mortgage insurance to the bill, the cost of the monthly mortgage insurance will usually favor borrowers with lower credit scores.
When it doubt, talk to a mortgage professional that will help you weight the pros and cons. You can also contact me for free credit analysis, and I can advise on the best course of action, whether it’s 2 months or a year from now. Good things can take longer, and that’s ok.
Please send all Utah FHA mortgage loan program questions to [email protected], or contact me by phone/text at (801) 473-3154.
Apply online to get started with a secure application, and find out how much home you can qualify for.
I can issue a same-day Pre-Qualification letter if needed. I’m also (usually) available on the weekends should you fall in love with a Utah home, and need to make an offer right away.