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- FHA loans are backed by the Federal Housing Administration and are easier to qualify for than conventional mortgages.
- You'll typically need at least a 580 credit score and a 3.5% down payment to qualify for an FHA loan.
- The FHA offers several types of home loans, including loans for home improvements.
FHA loans are often recommended for first-time homebuyers or those with less-than-stellar credit histories because they're generally easier to qualify for, come with more affordable mortgage rates, and require less cash up front to get into a home.
If you're considering one of these mortgages, here's everything you need to know, including FHA loan requirements, where to apply for one, and whether this type of mortgage makes sense for you.
What is an FHA loan?
Definition and purpose
An FHA loan is a type of mortgage insured by the Federal Housing Administration, which is a part of the US Department of Housing and Urban Development. The FHA loan program was created to expand access to homeownership, and it often makes getting a mortgage more affordable for first-time and lower-income homebuyers.
FHA loans are originated by private lenders, meaning you won't get the mortgage directly through the FHA. Instead, the FHA will insure loans from private lenders and pay those lenders a portion of the loan if an FHA borrower defaults. This reduces the risk for mortgage lenders, enabling them to offer lower rates and accept borrowers with lower scores.
How FHA loans differ from conventional loans
Conventional loans are mortgages not backed by any government agency. Because of this, they're often harder to qualify for, requiring strong credit scores. But they're extremely popular, and most of the mortgages originated in the US are conventional loans.
If your credit isn't great or you've experienced a major negative credit event like a foreclosure within the past few years, you might have an easier time getting an FHA loan. You may also be able to get a better mortgage rate.
Since these are both extremely popular types of mortgages, it's common to see lenders offer both conventional and FHA loans. This means that if you're not sure which one is right for you, you could get approved with a lender that offers both and talk to your loan officer about which mortgage best suits your situation.
FHA loan requirements
Minimum credit score
You'll need a credit score of at least 580 to get an FHA loan in most cases. However, some lenders will go down to 500 if you have a down payment of 10% or more.
It's also possible to qualify for an FHA loan if you have no credit score. Lenders who offer this option will establish a non-traditional credit history to evaluate your creditworthiness, using sources such as your rent or utility payment history.
Minimum down payment
How much you'll need to put down on an FHA loan depends on your credit score.
If your score is 580 or higher, you can put just 3.5% down. With a score between 500 and 579, you'll need a down payment of at least 10%.
However, if you already have this much for a down payment, it might be worth taking some time to work on your credit score before applying for a mortgage. That way, you might end up qualifying for a conventional loan with significantly cheaper mortgage insurance thanks to your large down payment.
Debt-to-income ratio limits
Your debt-to-income ratio (DTI) is the monthly amount you pay toward debts divided by your gross monthly income. This calculation is how a lender determines how much you can afford to spend each month on a mortgage payment.
FHA loan lenders often look for a DTI below 43%, though it's technically possible to qualify with a DTI up to 56.9%.
If you're unsure of whether you have an acceptable DTI for an FHA loan, it's best to speak with a lender. The maximum DTI you can have will depend on your lender, your credit score, and whether your loan can go through automated underwriting or if it needs to be manually underwritten.
If you have a high DTI, you may need to apply with multiple lenders before you find one that will qualify you. Look for mortgage lenders that work with borrowers with low credit.
Occupancy requirements and property types
FHA loans can be used to purchase single-family detached homes (a "standard" home that includes a single living unit and sits on its own land), townhouses, condos, and manufactured homes.
You can also use an FHA loan to purchase a multi-unit property with up to four living units, provided you occupy one of the units as your primary residence. The other units can be rented out to earn rental income.
FHA loans can't be used to purchase second homes or investment property.
Property standards and appraisal
Before a lender will approve you for an FHA loan, you'll need to get a home appraisal.
FHA appraisals differ slightly from appraisals done for conventional loans. While a conventional loan appraisal is generally only concerned with the market value of the home, an FHA appraiser also wants to ensure that the home meets FHA safety requirements.
This means the appraiser will inspect the property to ensure that the structure is generally safe and in serviceable shape and that the property meets FHA requirements. This includes, for example, having running water and working heating.
How to apply for an FHA loan
Preparing your financial documents
As with any mortgage, you'll need to show the lender proof of your ability to repay the loan when you apply. This means providing W-2s, paystubs, tax returns, or other documentation showing how much you earn each month. If you have other sources of income, such as disability benefits, be sure to provide proof of that, too.
You'll also need to show that you have the funds to cover your down payment and closing costs. So be prepared to provide bank statements for any accounts you plan to tap into.
Finding FHA-approved lenders
You should have an easy time finding lenders that offer FHA loans, but make sure you take the time to find a lender that suits your needs.
Start by doing some research into the best lenders for FHA loans and narrow down your search to lenders that meet your needs and offer features you like, such as a completely online application process.
When you're ready, apply with at least two or three different lenders. If you have a low credit score or a high DTI, you might need to apply with a few more lenders to find one that will qualify you and offer you a decent rate. Compare offers from multiple lenders to be sure you're getting the best deal.
Types of FHA loans
Standard FHA 203(b) loan
This is the standard mortgage that you probably think of when you hear the words "FHA loan." This is the loan you'll use to finance a primary residence purchase.
FHA 203(k) rehabilitation loan
The FHA 203(k) loan is a type of renovation loan, meaning you can use it to fund home improvements in addition to the purchase or refinance of a home.
Rate-and-term, cash-out, or streamline refinance
You have a few different options when it comes to refinancing into an FHA loan.
A rate-and-term refinance swaps your current mortgage for a new one with new terms, which could include a different term length and a different mortgage refinance rate.
A cash-out refinance enables you to take cash out of your home by giving you a new, larger loan than what you currently have.
A streamline refinance is a popular option for current FHA borrowers because it lets you get a new FHA loan without having to go through the same lengthy approval and appraisal process that you did with your original loan. You may not even need to have your credit checked.
Home equity conversion mortgage
The home equity conversion mortgage (HECM) is a popular type of reverse mortgage that's backed by the FHA. Reverse mortgages let you take money out of your home and receive a monthly payment from your mortgage lender. You must be 62 years or older to get a HECM.
FHA energy efficient mortgage (EEM)
An energy efficient mortgage backed by the FHA lets borrowers finance energy efficient home improvements into your loan amount. This could include things like installing new windows or replacing an inefficient HVAC system.
These mortgages can be combined with FHA 203(k) loans.
FHA loan limits and costs
Loan limits by area
The FHA restricts how much you can borrow. The limit depends on where you live and what type of property you buy.
In 2024, the mortgage limit "floor" for one-unit properties is $498,257, according to the US Department of Housing and Urban Development. This means that in low-cost areas, you can't get a mortgage for more than $498,257. The mortgage limit "ceiling" this year is $1,149,825 for a one-unit property. This means that the maximum loan limit in high-cost areas is $1,149,825.
You can see the limits for one- to four-unit properties in your area using the search tool on HUD's website.
Mortgage insurance premium (MIP)
When you get an FHA loan, you'll have to pay mortgage insurance both up front and annually.
The upfront mortgage insurance premium, sometimes shown as UFMIP, is equal to 1.75% of the loan amount and will need to be either paid at closing or financed into your mortgage.
Your annual mortgage insurance premium, sometimes referred to as MIP, will depend on your mortgage term, loan amount, and the size of your down payment.
For example, a borrower getting a 30-year FHA mortgage with a 3.5% down payment and a loan amount below $726,200 will have a yearly premium equal to 0.55% of their loan amount.
On a $200,000 loan, this means you'd pay $1,100 each year for FHA mortgage insurance. This will be divided by 12 and included in your monthly mortgage payment, meaning you'll pay around $92 per month.
If you make a down payment of 10% or more, you'll only pay for mortgage insurance for 11 years. Otherwise, you'll have to pay until you pay off the mortgage or refinance into a conventional loan.
FHA MIP chart for mortgage terms greater than 15 years
| Loan amount | LTV | Annual MIP rate |
| $726,200 or less | 90% or below | 0.50% |
| $726,200 or less | Above 90% but less than or equal to 95% | 0.50% |
| $726,200 or less | Above 95% | 0.55% |
| More than $726,200 | 90% or below | 0.70% |
| More than $726,200 | Above 90% but less than or equal to 95% | 0.70% |
| More than $726,200 | Above 95% | 0.75% |
FHA MIP chart for mortgage terms of 15 years or less
| Loan amount | LTV | Annual MIP rate |
| $726,200 or less | 90% or below | 0.15% |
| $726,200 or less | Above 90% | 0.40% |
| More than $726,200 | 78% or less | 0.15% |
| More than $726,200 | Above 78% but less than or equal to 90% | 0.40% |
| More than $726,200 | Above 90% | 0.65% |
Pros and cons of FHA loans
Advantages for first-time homebuyers
- More lenient borrowing requirements. FHA loans' requirements surrounding credit scores, debt-to-income ratios, and down payments are more flexible than other loan types. This means you can own a home even if your finances aren't in perfect shape.
- Low rates. FHA interest rates are generally lower than conventional rates, and they're comparable to VA loan rates.
- No private mortgage insurance. Conventional mortgages require you to get private mortgage insurance (PMI) if you have less than 20% for a down payment. PMI can be costly if you have a low credit score. But you dont need PMI with FHA loans.
Considerations and limitations
- Mortgage insurance. No, you don't have to pay PMI, but FHA loans do come with their own insurance that you'll pay both up front and on an annual basis for the life of the loan. Talk to your lender to see which option is overall more affordable for you.
- Minimum 3.5% down payment. This is still a relatively low minimum down payment. But if you're struggling to come up with 3.5%, consider looking into a USDA or VA loan. These are two other government-backed loans, and if you qualify, you might not need a down payment at all.
- Borrowing limits. FHA loans restrict you to borrowing under a certain amount, which could keep you from buying a home you like.
- Minimum property standards. You won't be approved for an FHA loan if your home has significant structural or safety issues. These restrictions could prevent you from buying a major fixer-upper.
Alternatives to FHA loans
FHA loans are some of the most affordable mortgages available, particularly if you have a lower credit score. But that doesn't mean they're always the right choice.
Conventional loans
Conventional mortgagesare often more attractive for borrowers with good credit and larger down payments, since they won't pay as much for mortgage insurance.
VA loans and USDA loans
VA loans and USDA loans also often come with low monthly mortgage rates, and they require no down payment.
Ultimately, the right type of mortgage for you comes down to your credit and finances.
How FHA loans compare
| FHA loan | Conventional loan | VA loan | USDA loan | |
| Minimum down payment | 3.5% (10% with credit score <580) | 3% | 0% | 0% |
| Minimum credit score | 580 (500 with 10% down payment) | 620 | Varies by lender, but often at least 620 | Typically at least 640 |
| Upfront mortgage insurance | 1.75% of loan amount | None, unless you have single-premium PMI | None; VA funding fee is equal to between 1.25% and 3.3% of loan amount | None; USDA upfront guarantee fee is equal to 1% of loan amount |
| Annual mortgage insurance | Between 0.15% and 0.75% of loan amount | Between 0.2% and 2% of loan amount | None | None; USDA annual guarantee fee is equal to 0.35% of loan amount |
FHA loan FAQs
What makes you qualified for an FHA loan?
FHA loans have more flexible requirements than other types of mortgages. It's possible to qualify with a credit score as low as 580 and a down payment of just 3.5%, or a score as low as 500 if you have a 10% down payment. But whether or not you'll qualify depends on your finances as a whole.
What will disqualify you from an FHA loan?
Common reasons that borrowers don't qualify for an FHA loan include having too high of a debt-to-income ratio or too low of a credit score.
What are the disadvantages of the FHA loan?
The main disadvantage of FHA loans for many borrowers is FHA mortgage insurance, which typically must be paid for the entire life of the loan. This is in contrast with conventional loans, which allow you to get rid of mortgage insurance once you reach 20% equity.
What credit score do you need for an FHA loan?
You'll need at least a 580 credit score if you plan to put down 3.5% on an FHA loan. You may qualify with a score down to 500 if you put down at least 10%.
Can FHA loans be used for any type of property?
You can only use an FHA loan if you plan to live in the property as your primary residence. But they can be used on many different types of properties, including single-family detached homes, townhouses, condos, and manufactured homes.
What are the main costs associated with an FHA loan?
The main costs that come with an FHA loan are the down payment of at least 3.5%, and the upfront and annual mortgage insurance premiums.
Can I refinance my existing mortgage into an FHA loan?
Yes, you can refinance your current mortgage into an FHA loan. If your existing loan is also an FHA loan, you may be eligible for a streamline refinance, which is a smoother and potentially cheaper process.
Personal Finance Reviews Editor
Laura Grace Tarpley (she/her) is a senior editor at Personal Finance Insider. She oversees coverage about mortgage rates, refinance rates, lenders, bank accounts, and borrowing and savings tips for Personal Finance Insider. She was a writer and editor for Business Insider's "The Road to Home" series, which won a Silver award from the National Associate of Real Estate Editors. She is also a Certified Educator in Personal Finance (CEPF).She has written about personal finance for over seven years. Before joining the Business Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. You can reach Laura Grace at ltarpley@businessinsider.com.
Mortgage Reporter
Molly Grace is a reporter at Business Insider. She covers mortgage rates, refinance rates, mortgage lender reviews, and homebuying for Personal Finance Insider.Before joining the Insider team, Molly was a blog writer for Rocket Companies, where she wrote educational articles about mortgages, homebuying, and homeownership.You can reach Molly at mgrace@businessinsider.com, or on Twitter @mollythegrace.
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