An FHA loan is a mortgage from a regular bank or lender that the Federal Housing Administration, part of HUD, agrees to insure. That insurance is why lenders will accept a 3.5% down payment and a credit score as low as 580, and why the loan comes with a mortgage insurance bill that most buyers carry for as long as they keep it. For millions of people it is the most realistic route to owning a home: roughly 83% of FHA purchase loans in the last fiscal year went to first-time buyers.
The usual explanations stop at the requirements list. This one goes further, into the questions that decide whether FHA is the right call: what the monthly payment really looks like once insurance is added, how much an extra few thousand dollars down saves over the life of the loan, what happens if you have student loans on a $0 or $10 payment, why some condos won’t qualify, and whether you’re better off with a conventional loan now that Fannie Mae has dropped its minimum credit score.
Seven Things Buyers Ask First
Short answers to the questions that come up in nearly every first conversation with a loan officer. The detail, and the exceptions, follow.
Anyone with a Social Security number who is a U.S. citizen or lawful permanent resident, plans to live in the home as their main residence, can document steady income, and meets the credit and debt limits. You don’t have to be a first-time buyer.
FHA allows 580 for 3.5% down and 500 to 579 with 10% down. Many lenders set their own floor higher, often 600 to 640, so if one lender says no, ask another.
On a $350,000 home, the 3.5% down payment is $12,250. Closing costs typically add a few percent more, though sellers can contribute up to 6% of the price toward them, and the 1.75% upfront mortgage insurance is usually rolled into the loan.
If you put at least 10% down, annual mortgage insurance ends after 11 years. With less than 10% down, it lasts for the life of the loan, and the usual way out is refinancing into a conventional loan once you have enough equity.
FHA tends to win below a 680 score or with a high debt-to-income ratio. Conventional tends to win with strong credit and 10% or more down. In our side-by-side example on a $350,000 home, the monthly payments landed within about $15 of each other.
Yes. FHA allows the entire down payment to come from an acceptable gift, such as a relative, employer or approved charitable program, with a signed gift letter and a paper trail for the funds.
Because it’s often the only approval, or the cheapest one, at their credit score and debt level. Many owners refinance out of FHA later, after their credit and equity improve, so “forever” rarely means 30 years in practice.
FHA Loan Requirements
These are HUD’s baseline rules. Lenders can and often do add stricter “overlays,” which is why shopping around matters more with FHA than with almost any other loan.
| Requirement | FHA rule | What it means in practice |
|---|---|---|
| Credit score | 580+ for 3.5% down; 500–579 for 10% down | Many lenders want 600–640; shop lenders if denied |
| Down payment | 3.5% or 10% minimum | Can be a documented gift |
| Debt-to-income | 31% housing / 43% total as a baseline | Automated approval can go higher with strong compensating factors |
| Income history | Steady, verifiable income | Usually two years in your field; gaps need an explanation |
| Occupancy | Primary residence | Move in within 60 days; live there at least a year |
| Property | Meets HUD minimum standards | FHA appraisal checks safety, soundness and security |
| Loan size | Within your county’s FHA limit | $541,287 to $1,249,125 for one unit |
| Residency | Citizen or lawful permanent resident | Non-permanent residents ineligible since May 25, 2025 |
| Federal debts | No delinquent federal debt | Defaulted federal student loans can block approval |
Waiting periods after a bankruptcy or foreclosure
FHA is more forgiving here than conventional lending. The usual waiting periods are two years after a Chapter 7 bankruptcy discharge, and three years after a foreclosure, deed-in-lieu or short sale. If you’re in a Chapter 13 plan, you may qualify after 12 months of on-time plan payments with the court trustee’s permission. Shorter waits can be possible when the setback came from documented extenuating circumstances, such as a serious illness or the death of a wage earner, and you’ve re-established good credit since.
Loan limits by county
The floor applies in most of the country; high-cost metros fall somewhere between the floor and the ceiling. For comparison, the baseline conforming limit for Fannie Mae and Freddie Mac loans is $832,750 for a one-unit home, so in many counties a conventional loan can go higher than FHA.
What an FHA Loan Really Costs: Mortgage Insurance Explained
FHA charges two kinds of mortgage insurance premium, and together they are the main reason the loan costs more than its interest rate suggests.
Charged once at closing. On a $337,750 base loan, that’s about $5,911. Nearly everyone finances it into the loan rather than paying cash, which means you pay interest on it for the life of the mortgage.
For 30-year loans up to $726,200, the annual rate is 0.55% with less than 5% down and 0.50% with 5% or more down. Loans above $726,200 carry 0.70% to 0.75%. Fifteen-year loans are much cheaper, from 0.15% to 0.40%. These rates have been in effect since HUD cut them in March 2023.
| Loan | Down payment | Annual MIP | How long it lasts |
|---|---|---|---|
| 30-year, up to $726,200 | Less than 5% | 0.55% | Life of loan |
| 30-year, up to $726,200 | 5% to under 10% | 0.50% | Life of loan |
| 30-year, up to $726,200 | 10% or more | 0.50% | 11 years |
| 30-year, over $726,200 | Varies | 0.70%–0.75% | Life or 11 years |
| 15-year, up to $726,200 | Varies | 0.15%–0.40% | Life or 11 years |
The hidden payoff of 10% down
When we ran the two paths side by side, the gap was larger than most buyers expect. Moving from 3.5% down to 10% down costs an extra $22,750 in cash on a $350,000 home. Over 30 years it saves roughly $22,000 in annual mortgage insurance alone, plus interest on a smaller loan. If you plan to keep the loan for decades and can reach 10%, the extra cash pays for itself. If you expect to refinance or sell within ten years, it matters much less.
FHA Loan Calculator
Enter your numbers to estimate the first-year monthly payment, including upfront and annual mortgage insurance. It runs entirely in your browser; nothing is sent anywhere.
Estimates only. Annual MIP uses HUD’s current rate table on the base loan; actual MIP is calculated on the average outstanding balance each year, and taxes, insurance and any HOA dues vary by property. Closing costs are not included.
FHA vs. Conventional: Which Is Better?
The honest answer depends on three numbers: your credit score, your down payment and how long you’ll keep the loan.
| Feature | FHA | Conventional |
|---|---|---|
| Minimum down | 3.5% (580+) | 3% for some first-time and lower-income programs; 5% common |
| Credit score | 580, or 500 with 10% down | Fannie Mae dropped its 620 floor for automated approvals in November 2025; lenders still set minimums |
| Pricing at lower scores | Rate varies less with score | Rate and PMI climb steeply with lower scores |
| Mortgage insurance | 1.75% upfront plus annual MIP | Monthly PMI only, below 20% equity |
| Removing insurance | Life of loan under 10% down; 11 years at 10%+ | Cancel at 20% equity; ends automatically at 22% |
| Debt-to-income | Often more flexible | Generally up to about 50% with automated approval |
| Loan limit, one unit | $541,287 in most counties | $832,750 baseline |
| Property standards | Stricter appraisal | Fewer condition requirements |
| Assumable by a buyer | Yes, with lender approval | Generally no |
FHA Interest Rates Right Now
FHA rates usually run a little below conventional rates, because the federal insurance makes the loans less risky for lenders. The catch is that the mortgage insurance adds back some of that saving.
Rates moved up nearly three-quarters of a point between late August and mid-October. That makes rate shopping more valuable than usual. Quotes from different lenders on the same day can vary meaningfully, and FHA pricing in particular is less tied to your credit score than conventional pricing, so the lender’s own margin often explains more of the difference than your profile does.
Ask each lender for a Loan Estimate, the standard three-page form, on the same day and for the same lock period. Compare the interest rate, the points or credits in section A, and the total closing costs. A lower rate that costs two points upfront may not be the better deal if you expect to refinance when rates fall.
Cash to Close: What You Actually Need in the Bank
“3.5% down” is the number in the ads. The number that matters on closing day is larger, and it surprises a lot of first-time buyers.
| Item | On a $350,000 home | Can someone else cover it? |
|---|---|---|
| Down payment (3.5%) | $12,250 | Yes, an acceptable gift |
| Upfront MIP (1.75%) | About $5,911 | Usually financed into the loan |
| Lender and third-party fees | Varies by lender and state | Seller can pay, up to 6% of price combined |
| Prepaid taxes, insurance, interest | Several months of escrow | Can be part of seller concessions |
| Earnest money deposit | Set in your offer | Credited back toward cash to close |
| Appraisal and inspection | Paid before closing | Usually you, out of pocket |
The line people most often forget is the appraisal and inspection, paid weeks before closing and not refunded if the deal falls apart. Set aside that money early. Then ask your lender for a Loan Estimate with seller concessions built in, so you can see exactly how much cash a 3% or 6% credit from the seller would save. In a slower market, a seller credit is often easier to negotiate than a price cut, and it reduces the cash you need instead of the loan amount.
Keep a cushion after closing as well. Lenders may ask to see reserves, and even when they don’t, a new home tends to produce its first surprise repair within months.
The FHA Appraisal: What Can Hold Up a Sale
An FHA appraiser checks value and HUD’s minimum property standards, which focus on whether a home is safe, sound and secure. It is not a full inspection, but it can require repairs before closing.
- Peeling or chipping paint on homes built before 1978, because of lead paint concerns.
- Roofs near the end of their life, active leaks or missing shingles.
- Missing handrails on stairs, broken windows or doors that don’t lock.
- Utilities that aren’t on for the appraisal, so heat, water and electrical can’t be checked.
- Exposed wiring, unsafe heating systems or evidence of structural problems.
- Water and drainage issues, such as standing water in a crawlspace or a failing well or septic system.
Most required repairs are small and can be fixed by the seller before closing. Ask your agent to tour the house with this list in mind before you make an offer, and write a repair clause into the contract. If the list is long, a 203(k) loan may be the better fit.
Other Kinds of FHA Loans
“FHA loan” usually means the standard 203(b) purchase mortgage, but FHA insures several other products worth knowing.
| Loan | What it does | Good for |
|---|---|---|
| 203(b) standard | Buy or refinance a primary home | Most buyers |
| Limited 203(k) | Purchase plus up to $75,000 of non-structural repairs | Cosmetic updates, new systems |
| Standard 203(k) | Purchase plus major or structural renovation | True fixer-uppers |
| Streamline Refinance | Lower the rate on an existing FHA loan with less paperwork | Current FHA owners when rates fall |
| Cash-out refinance | Borrow against equity, up to 80% of value | Owners with equity and a clear use |
| Energy Efficient Mortgage | Finance energy upgrades into the loan | Insulation, windows, HVAC |
| HECM reverse mortgage | Draw on equity, age 62 and up | Older homeowners; counseling required |
The HECM reverse mortgage limit is $1,249,125 nationwide this year, the same as the one-unit FHA ceiling. Because reverse mortgages are complex and can affect heirs, FHA requires a session with an approved counselor before you apply.
Which Situation Sounds Like Yours?
FHA’s rules have plenty of quirks. These are the ones that change outcomes most often.
This is FHA’s core purpose. Pair it with your state or local down payment assistance program, which many housing finance agencies run alongside FHA loans, and ask about grants or forgivable second loans. A HUD-approved housing counselor can walk you through local programs for free, and some assistance programs require a homebuyer education course before closing.
You’re inside FHA’s rules but outside many lenders’ comfort zones. Ask lenders directly what their FHA floor is before applying. Lenders that do a lot of FHA business are often more flexible. Meanwhile, paying card balances below 30% of their limits before your application is the fastest score lift most people can get.
FHA counts the actual monthly payment on your credit report. If it shows $0, because of deferment, forbearance or a $0 income-driven payment, the lender must count 0.5% of the balance instead: $500 a month on $100,000. A documented payment above zero, such as a small income-driven payment, counts at face value and can make a big difference. Defaulted federal student loans are a separate problem: they show up in HUD’s CAIVRS system and usually stop an FHA application until resolved.
Get a signed gift letter stating the amount, the giver’s relationship to you, and that no repayment is expected. Keep a clean paper trail: the giver’s bank statement showing the withdrawal and your statement showing the deposit. Large unexplained cash deposits are one of the most common reasons FHA files stall.
FHA allows up to four units with the same 3.5% down, as long as you live in one of them, and the limits rise with the unit count. Lenders can count expected rent from the other units toward your income. For three- and four-unit properties, the rental income generally has to pass a self-sufficiency test showing the rents can cover the mortgage payment.
The condo project generally needs to be on FHA’s approved list, which you can search on HUD’s website. If it isn’t, some individual units can still qualify through single-unit approval when the project meets certain standards. Check before you make an offer; it’s a common deal-breaker that surfaces too late.
An FHA 203(k) loan rolls the purchase and the renovation into one mortgage. The Limited 203(k) covers smaller, non-structural projects, and HUD’s June package of changes allows more contractor draw requests, which should make projects easier to finish. A standard FHA loan won’t work on a home that fails the appraisal’s safety and soundness checks, so a fixer-upper usually means 203(k) or a different loan.
FHA no longer insures loans for non-permanent residents, a change that took effect May 25, 2025. HUD reported that FHA purchase loans to this group fell from about 5.8% of originations to about 0.1%. Conventional loans backed by Fannie Mae and Freddie Mac remain available to lawful non-permanent residents, and that’s now the usual route.
FHA loans are assumable. With lender approval, you can take over the seller’s existing loan, rate and remaining term. In a market where new rates are above 7%, an assumable loan from a few years ago can be worth a lot. The catch: you have to pay the seller the difference between the price and the loan balance, often in cash or with a second loan, and the process takes longer.
If rates fall, an FHA Streamline Refinance can lower your rate with reduced paperwork and often no appraisal, as long as it gives you a net tangible benefit. If your home value and credit have risen, refinancing into a conventional loan with 20% equity is the usual way to drop mortgage insurance entirely.
A 90-Day Plan for First-Time FHA Buyers
Most FHA problems are solvable if you find them early. Three months before you start touring homes is the right time to start.
Days 1–30: Know your numbers
Pull all three credit reports and dispute any errors. Write down every monthly debt payment, including student loans, and check whether any shows $0 on your report; if so, get a written statement of your actual payment from the servicer. Add up your gross monthly income and divide your debts by it. If you’re above about 43% before adding a mortgage, the next two months are about bringing that number down.
Days 31–60: Build the file
Stop opening new credit accounts and avoid large purchases on credit. Pay card balances down, ideally below 30% of each limit. If family is helping with the down payment, move the gift into your account now and keep the paper trail, so it isn’t a last-minute scramble. Gather two years of W-2s or tax returns and set up a folder for pay stubs and bank statements. Call a HUD-approved housing counselor to ask about down payment assistance where you live; some programs require a class before closing.
Days 61–90: Get pre-approved and set a real budget
Apply for pre-approval with two or three FHA lenders in the same week. Compare their Loan Estimates line by line, and ask each about its minimum credit score, whether it can price seller concessions into your estimate, and how it handles condos if that’s what you’re shopping for. Then set your house budget off the full monthly payment you’re comfortable with, not off the maximum the lender approves. Use the calculator above with your county’s real tax rate and an insurance quote.
How to Apply for an FHA Loan
You don’t apply to HUD. You apply to an FHA-approved lender, which can be a bank, credit union or mortgage company.
- Check your credit and debts. Pull your reports at AnnualCreditReport.com, fix errors, and add up your monthly debt payments to estimate your debt-to-income ratio.
- Get pre-approved by two or three FHA lenders. Ask each for its minimum FHA score and a Loan Estimate. HUD’s online lender search lists FHA-approved lenders by area.
- Gather documents. Two years of W-2s or tax returns, 30 days of pay stubs, two months of bank statements, ID, and gift letters if you’re using gift funds.
- Make an offer and request seller concessions if needed. Sellers can contribute up to 6% of the price toward your closing costs.
- Get the FHA appraisal and inspection. The appraisal checks value and HUD’s minimum property standards; a separate home inspection protects you and is strongly recommended.
- Lock your rate and close. Review your Closing Disclosure at least three business days before closing and compare it with your Loan Estimate.
HUD-approved housing counseling agencies offer free or low-cost guidance on budgeting, credit and buying a home. They can also explain local down payment assistance.
The Risk Nobody Mentions: Making the Payment Fit
FHA’s flexibility can approve you for a payment that stretches your budget. The data shows why that deserves attention.
The Mortgage Bankers Association’s second-quarter survey put the FHA delinquency rate at 11.79%, against 2.72% for conventional loans and 4.89% for VA loans. That gap partly reflects who FHA serves, borrowers with thinner credit and less cushion, but it’s also a warning about approvals at high debt-to-income ratios. A practical rule: before you accept a pre-approval amount, write out your monthly budget with the full payment, including MIP, taxes and insurance, plus a few hundred dollars for repairs. If it only works when nothing goes wrong, aim lower.
If you ever fall behind, call your servicer early. FHA has a structured set of loss-mitigation options, from repayment plans to partial claims and loan modifications, and they’re far easier to use before a loan goes deeply delinquent.
Our Verdict
Your score is below about 680, your debt-to-income is high, your down payment is a gift, you’re buying a two- to four-unit home to live in, or you need a 203(k) renovation loan.
Your score is strong, you can put 10% or more down, your loan exceeds the FHA limit, or you’re a lawful non-permanent resident.
Get both quotes on the same day, budget for the full payment, and plan your exit from mortgage insurance before you sign.
Questions people still ask
What is an FHA loan, in one sentence?
It’s a mortgage from a private lender that the Federal Housing Administration insures against default, which lets lenders approve smaller down payments and lower credit scores.
Do I have to be a first-time buyer?
No. Repeat buyers qualify too, as long as the home will be their primary residence. You generally can’t have two FHA loans at once, with limited exceptions such as relocating for work.
Can I buy an investment property with FHA?
Not a standalone rental. You can buy a two- to four-unit property and rent out the other units if you live in one.
Is upfront MIP refunded if I refinance?
Partly, if you refinance into a new FHA loan within three years; a share of the upfront premium is credited toward the new loan’s premium. Refinancing into a conventional loan doesn’t earn that credit.
Can I get an FHA loan after a divorce or job change?
Yes. Lenders look for stable income, not an unbroken job history at one employer. A move within the same field is usually fine; explain gaps in writing.
Can a parent co-sign an FHA loan without living there?
Yes. FHA allows a non-occupant co-borrower, often a relative, whose income and debts are counted alongside yours. They’re fully responsible for the loan and it appears on their credit.
Can I use FHA for a manufactured home?
Often, yes, if the home was built after June 15, 1976, sits on a permanent foundation that meets HUD guidelines and is taxed as real estate. Fewer lenders offer these loans, so ask early.
I’m self-employed. Can I still get an FHA loan?
Yes, typically with two years of personal and business tax returns. Lenders use your income after business deductions, so heavy write-offs lower the amount you qualify for.
Does FHA have income limits?
No. Unlike some conventional 3%-down programs and many down payment assistance programs, FHA itself has no maximum income. What limits you is your debt-to-income ratio and your county’s loan limit.
Can I put more than 3.5% down on an FHA loan?
Yes, and it can pay off. Reaching 5% lowers the annual MIP rate on most 30-year loans from 0.55% to 0.50%, and reaching 10% means MIP ends after 11 years.
Will an FHA loan make my offer less attractive to sellers?
Sometimes, because sellers worry about the stricter appraisal. A strong pre-approval letter, a reasonable inspection period and a clear plan for small repairs usually ease that concern, and in many markets FHA offers win every day.
How long does FHA approval take?
Pre-approval can take a day or two. From accepted offer to closing, 30 to 45 days is typical, longer for condos needing approval or 203(k) loans.
How this page was checked. Loan limits, mortgage insurance rates, eligibility and policy changes were checked against HUD announcements and guidance; conforming limits against FHFA; rates against Freddie Mac’s weekly survey and Mortgage News Daily’s daily index; delinquency figures against the Mortgage Bankers Association’s quarterly survey, all on or before October 22. Payment and mortgage insurance examples are our own math and are estimates. Lender requirements vary; your Loan Estimate is the final authority.
This page is independent and not affiliated with HUD, FHA or any lender. It is general information, not financial or legal advice.
Key sources: HUD · Federal Housing Finance Agency · Freddie Mac · Mortgage Bankers Association · Consumer Financial Protection Bureau