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An FHA loan is a government-insured mortgage program administered by the Federal Housing Administration, which is part of HUD. FHA insures loans made by approved lenders, which helps borrowers with lower down payments and more flexible credit standards get mortgage financing.
FHA loans are commonly used by first-time buyers and borrowers with limited savings because they allow eligible borrowers to purchase a home with as little as 3.5% down when the borrower's credit score meets the FHA low-down-payment threshold.
FHA does not directly lend money. Instead, it insures FHA-approved loans made by participating lenders, reducing lenders' risk and enabling more favorable loan terms to qualified borrowers. The FHA program began under the National Housing Act in 1934 and has helped millions of Americans access homeownership.
If you don't know what types of FHA loans are, scroll down to get more ideas.
FHA 203(b): The most common forward mortgage for home purchase and rate/term refinance.
FHA 203(k): Purchase + rehab financing in one loan. There are two versions:
Energy Efficient Mortgage (EEM): to finance energy-saving improvements.
FHA Condominium and Manufactured Home programs: special rules apply. Many condos require FHA project approval.
HECM: FHA's insured reverse mortgage program for homeowners age 62+.
Approved private lenders make the loan and FHA provides mortgage insurance to protect the lender if the borrower defaults. Borrower qualification and underwriting follow FHA guidelines (Handbook 4000.1) rather than lender-specific overlays, which often makes FHA underwriting more flexible for credit history and down payment size. Borrowers pay mortgage insurance premiums, including an upfront MIP plus annual MIP, which fund the insurance program and allow continued lending.
FHA aims to be more accessible than many conventional programs while ensuring borrowers can repay. As for those who want to apply for FHA loan, check out the common FHA requirements here:
Credit score and down payment: FICO® score ≥ 580 generally qualifies for the 3.5% down option. Borrowers with scores 500–579 may be eligible with 10% down. Lenders may impose overlays. Check with your lender.
Employment and income: Stable, documented income like pay stubs, W-2s, tax returns, and at least a reasonable employment history. Two years is commonly referenced.
Debt-to-income (DTI): FHA commonly evaluates DTI with a guideline of around 43%, but loans can be approved with higher DTI of up to ~57% when strong compensating factors exist.
Primary residence: The property must be owner-occupied as the borrower's primary residence, except for certain multi-unit properties where owner-occupancy rules apply.
Property condition: The property must meet FHA minimum property standards as verified by an FHA appraisal. Condos and manufactured homes have additional eligibility rules.
Legal residency and SSN: Borrowers must have lawful residency and a valid Social Security number. Specific program exceptions exist, e.g., certain disaster-related programs.
How to get an FHA loan? You should ensure your credit, income documentation, and DTI meet FHA guidelines. Save for the required down payment and closing costs. and be prepared to show proof of employment and history. Typical practical guidance:
Aim for a FICO score ≥ 580 to qualify for 3.5% down. If your score is 500–579, expect a 10% minimum down payment.
Keep DTI as low as possible. While 43% is a common benchmark, a strong borrower may qualify with higher ratios if there are compensating factors.
Avoid new credit inquiries or large new debts while your loan is in process.
Work with an FHA-approved lender experienced in FHA underwriting.
For FHA case numbers assigned on or after January 1, 2025, the FHA national floor for a one-unit property is $524,225, and the ceiling of high-cost area maximum for a one-unit is $1,209,750. Multi-unit limits differ. You may see HUD/FHA lookup tools for county-specific limits. Because limits vary by county, always verify the exact limit for the county where the property is located.
Also, if you don't know whether an FHA loan suits you, you can take a look at its Pros and Cons before you choose a loan.
Low down payment at 3.5% if eligible.
Flexible credit requirements that help borrowers with lower credit scores access financing.
Gifts allowed for down payment/closing costs under FHA rules.
Varied programs (203(k), EEM, HECM) permit specialized financing needs.
Mortgage insurance premiums (MIP) are required (UFMIP + annual MIP), which can make monthly payments higher than a similar conventional loan with PMI that can be canceled once 20% equity is reached. UFMIP is typically 1.75% of the base loan amount.
Duration of annual MIP: For loans with <10% original down payment (for case numbers on/after June 3, 2013), annual MIP generally remains for the life of the loan. For ≥10% down, annual MIP is typically required for 11 years. This is an important difference from conventional PMI rules.
Property condition requirements and condo/manufactured home restrictions may limit available properties.
Loan limits may make FHA infeasible in very high-cost markets unless county limits are high enough.
An FHA 203(k) loan lets buyers finance a home purchase and renovation costs in a single mortgage. Standard 203(k) is for major renovations, usually over $35,000. Limited 203(k) covers smaller projects. This is useful for purchasing and rehabilitating fixer-uppers.
Key differences of FHA vs Conventional loans lie here: FHA loans are government-insured and accept lower down payments and credit scores. Conventional loans are privately underwritten and typically require higher credit and down payments to avoid PMI. FHA requires MIP. Conventional PMI has different cancellation rules. FHA also imposes stricter property condition standards and program-specific rules for condos, manufactured homes, etc.
Borrowers who meet FHA eligibility: appropriate credit score, documented income and employment, acceptable DTI with lender discretion, lawful residency and valid SSN, and intent to occupy the property as a primary residence. FHA also allows certain non-traditional credit documentation in limited cases.
Yes, FHA loans can be assumable. A buyer can assume an FHA loan, subject to lender approval and meeting FHA qualifying standards. Assumption can be attractive if the existing loan rate is lower than the current market rates. The original borrower may remain liable unless formally released by the lender.
Upfront MIP (UFMIP): typically 1.75% of the base loan amount, which is financable into the loan or paid at closing.
Annual MIP: varies by loan amount, LTV, and term. Common ranges for annual MIP are roughly 0.45%–1.05%, but actual rates depend on the specific loan matrix.
Removal: For loans with case numbers assigned on or after June 3, 2013, if the original down payment was < 10%, the annual MIP generally lasts the life of the loan. if ≥ 10%, annual MIP is typically required for 11 years. The practical way borrowers often remove MIP is to refinance into a conventional loan once they have enough equity and qualify.
FHA's anti-flip policy generally prohibits FHA insurance on properties resold within 90 days of the seller's acquisition, with limited exceptions, for example, documented seller hardship, REO sales, inherited property, or other HUD-specified exceptions. This rule is designed to limit predatory flipping and inflated appraisals. Always check the specific case for qualifying exemptions.
A Streamline Refinance can be a good option for existing FHA borrowers to reduce monthly payments or switch loan terms with less documentation. Streamline refinances often do not require a new appraisal and require less documentation, but they still must meet FHA/net tangible benefit rules and may require lender review. Other FHA refinance types (rate/term, cash-out, 203(k) refinance) typically require appraisal and fuller underwriting. Evaluate closing costs, break-even time, and how long you plan to stay in the home before refinancing.
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