A common Seattle-area story: you have solid income, you have cash saved, and you are ready to stop renting. Then the rate quote shows up, the down payment math starts to sting, and someone mentions FHA as a way to get in the door.

FHA can absolutely be a smart path, especially for first-time buyers who want a smaller down payment and more flexible credit guidelines. But it is not a free pass. The approval rules are specific, the property has to qualify, and the monthly payment can look different than a conventional loan because of mortgage insurance.

Below is a practical, plain-English walkthrough focused on understanding FHA loan requirements and what they mean for real buyers in Seattle, Bellevue, and across King County.

What an FHA loan really is (and what it is not)

FHA loans are mortgages insured by the Federal Housing Administration. The loan is still made by a lender, but the FHA insurance reduces lender risk. That is why FHA often works for buyers with lower down payments or less-than-perfect credit.

That insurance is also why FHA comes with mortgage insurance requirements that usually last longer than what you might see on conventional loans. So the trade-off is simple: easier entry requirements in exchange for additional insurance costs and tighter property standards.

Understanding FHA loan requirements: the borrower basics

When clients ask me, “What do I need to qualify?” I break it into four categories: credit, down payment, income and debt, and documentation. You do not have to be perfect in all four, but you do need a clean, supportable story.

Credit score and credit history

FHA is known for being more flexible with credit scores than conventional financing. In many cases, a borrower with a 580+ score can be eligible for the minimum down payment. Scores below that may still be possible, but the required down payment is typically higher and lender overlays can apply.

What matters just as much as the number is the pattern. A single late payment two years ago is different from several recent lates across multiple accounts. Collections and charge-offs do not always have to be paid to qualify, but they can affect your score and your automated underwriting result. Bankruptcy and foreclosure have required waiting periods, and the exact timeline depends on the event and the circumstances.

If you are a tech professional with limited installment debt, you can still have a lower score due to thin credit. In that case, the strategy may be building a stronger profile for 60 to 90 days rather than forcing a rushed application.

Down payment rules and what “3.5% down” actually means

The headline benefit is the minimum 3.5% down payment for qualified borrowers. That down payment is based on the purchase price or appraised value, whichever is lower. In a competitive market, that detail matters. If you offer above list price but the appraisal comes in lower, your required down payment is calculated on the lower appraised value, and you may need extra cash to bridge the gap.

Your down payment funds can come from your own savings, a gift from an eligible family member, or certain approved assistance sources. There are rules around documenting the movement of money, so large cash deposits without a clear paper trail can cause delays. The cleanest path is typically seasoned funds in your bank account, documented gifts, or a well-documented sale of assets.

Income, employment, and debt-to-income ratio

FHA uses your income and monthly debt payments to calculate debt-to-income ratio (DTI). There is not one magic number because approvals depend on the overall file strength and automated underwriting feedback. Still, if your DTI is high, the loan becomes more sensitive to credit score, cash reserves, and how stable your income looks.

For W-2 employees, lenders look for stable employment and consistent income. For variable income like bonuses, commissions, or overtime, the lender generally wants a history – often two years – and will average it. For self-employed borrowers, the review is more documentation-heavy and centered on tax returns.

Tech compensation adds a layer. RSUs and stock compensation can sometimes be used, but the lender will scrutinize vesting schedules, history, and how the income is reported. If you are counting on equity compensation to qualify, you want to address it early so the underwriting approach is clear before you write an offer.

Documentation: what underwriters actually want to see

FHA guidelines are one thing. Underwriting is the real-world process of verifying you meet them. Expect to provide pay stubs, W-2s, tax returns (in some cases), bank statements, and explanations for any credit events or unusual deposits.

If you are changing jobs, relocating within the Seattle area, or moving from contractor to full-time, timing matters. A job offer can sometimes be used, but it must meet strict criteria and the file must still support stable repayment.

The property also has to qualify – and this is where FHA can surprise people

Many buyers focus on their own qualification and forget FHA is also picky about the home. The FHA appraisal is not just about value. It includes a health and safety review.

In practice, that means obvious issues can trigger required repairs before closing. Examples include peeling paint on older homes, missing handrails, exposed wiring, roof problems, or a non-functioning heating system. Condos add another layer because the condo project itself may need FHA approval, which can limit options in certain buildings.

This is why FHA is sometimes tougher in a market where homes sell as-is. It is not impossible, but the listing condition and seller flexibility matter more. If you are shopping older housing stock in Seattle, you should plan for the possibility that the home may need repairs to meet FHA standards.

Mortgage insurance on FHA: the cost you need to model up front

FHA mortgage insurance typically includes two parts: an upfront mortgage insurance premium (often financed into the loan amount) and an annual mortgage insurance premium paid monthly.

This is the part many buyers do not fully price in when comparing FHA to conventional. FHA mortgage insurance can keep the payment higher even with a lower interest rate. Also, for many FHA loans, the monthly mortgage insurance can last for the life of the loan if you put the minimum down. If you put 10% or more down, it may fall off after a set period, depending on the terms.

That does not mean FHA is a bad deal. It means you should treat it like a stepping stone: buy the home, build equity, and then evaluate whether refinancing into a conventional loan later makes sense. The right answer depends on future rates, your credit improvement, and home value appreciation.

Loan limits and occupancy rules: common Seattle-area tripwires

FHA has county-based loan limits that can be higher in high-cost areas. King County limits are often different than nearby counties, so the exact property location matters.

FHA is also primarily intended for owner-occupied homes. You are expected to move in and use it as your primary residence, typically within 60 days of closing, and intend to live there for at least a year. Life happens, and there are legitimate reasons plans can change, but you should not go into FHA planning to use it as an investment property immediately.

If you are an investor, FHA can still be useful as a “house hack” tool – buying a multi-unit property (up to four units, if eligible) and living in one unit while renting the others. The underwriting is more involved, and the property standards matter, but in the right situation it can be a strong wealth-building move.

How FHA compares to conventional (and when FHA wins)

In King County, many buyers qualify for conventional and still ask about FHA. That is smart. You should compare both, because the best loan is the one that fits your payment, your cash needs, and your future plans.

FHA often wins when the down payment is tight, the credit profile is recovering, or the file needs flexibility on certain credit events. Conventional often wins when you have stronger credit and want mortgage insurance that can drop off once you reach enough equity.

There is also the offer strategy side. Some sellers and listing agents view FHA as harder because of appraisal and repair requirements. That perception is not always fair, but it is real. If you are in a multiple-offer situation, your agent and lender should help you position the offer with realistic timelines, a clear approval status, and a plan for appraisal outcomes.

A real-world scenario I see with tech buyers

A buyer at a major tech employer may have strong income but limited liquid cash because they prioritized retirement contributions, or their savings are tied up while waiting for RSUs to vest. FHA can work because the down payment hurdle is lower and gift funds can be allowed.

The trade-off is payment composition. With FHA mortgage insurance, the monthly payment can be higher than expected, so we model it carefully and talk about a future refinance plan if the buyer expects income growth, credit score improvement, or significant home appreciation.

If you want a clean plan tailored to Seattle pricing realities, this is exactly the kind of scenario we work through at The Mortgage Reel – not just “can you qualify,” but “does this loan still make sense two years from now?”

What to do before you apply (so FHA feels straightforward)

If you are early in the process, you can save yourself stress by lining up the basics before you fall in love with a house. Make sure your funds are easy to document, avoid opening new debt, and keep your payroll and equity compensation documentation organized.

If your credit score is close to a threshold, small changes can matter. Paying down revolving balances, correcting errors, and spacing out credit inquiries can move the score enough to change pricing and approval outcomes. The best time to do that work is before you are under contract.

Closing thought: the goal is not to “get an FHA loan.” The goal is to buy the right home with a payment that still feels comfortable when life gets busy – and choosing the right loan is part of that confidence.