An FHA loan is a government-insured mortgage used to buy or refinance a primary residence. The Federal Housing Administration, or FHA, does not lend the money directly. It insures loans made by private, HUD-approved lenders.
FHA insurance reduces some of the lender’s risk, allowing the program to accommodate smaller down payments and a wider range of credit profiles than many conventional mortgage options.
Under FHA policy, borrowers with a qualifying credit score of at least 580 may be eligible to put down 3.5%. Borrowers with scores from 500 to 579 are limited to a maximum 90% loan-to-value ratio, which generally means a 10% down payment. Individual lenders may require higher credit scores or apply other standards.
FHA loans are not limited to first-time buyers. However, they are widely used by that group. More than 83% of FHA-insured forward purchase mortgages in fiscal year 2025 went to first-time homebuyers, according to HUD.
FHA Loan Basics
| Feature |
FHA Loan Requirement |
| Government Backing |
Insured by the FHA and issued by an FHA-approved private lender |
| Minimum Down Payment |
3.5% with a qualifying credit score of at least 580 |
| Lower Credit-Score Range |
Scores from 500 to 579 are limited to 90% loan-to-value, generally requiring 10% down |
| Occupancy |
At least one borrower must use the property as a principal residence |
| Eligible Property |
Generally a one- to four-unit home that meets FHA property requirements |
| Mortgage Insurance |
Upfront and annual mortgage insurance premiums generally apply |
| Loan Limits |
Maximum loan amounts vary by county and number of housing units |
How Does an FHA Loan Work?
You apply for an FHA loan through an FHA-approved bank, credit union or mortgage lender. The lender reviews your credit, income, debts, assets and the property before deciding whether the mortgage qualifies for FHA insurance.
The FHA establishes minimum program rules, but it does not require every lender to approve every borrower who meets those minimums. Lenders may use additional requirements known as overlays.
If the loan closes, you make payments to the lender or mortgage servicer. FHA insurance protects the lender against part of its loss if the borrower defaults. The borrower pays for that protection through mortgage insurance premiums.
Basic FHA Loan Requirements
FHA loans are known for flexible qualification standards, but borrowers still need to meet credit, income, property and occupancy requirements. For a detailed review, see how to qualify for an FHA loan.
Credit Score and Down Payment
FHA policy provides the following credit and loan-to-value limits:
- A qualifying credit score of 580 or higher may permit the maximum 96.5% loan-to-value ratio, which generally requires a 3.5% down payment.
- A qualifying credit score from 500 to 579 is limited to a maximum 90% loan-to-value ratio, which generally requires a 10% down payment.
- A qualifying credit score below 500 is not eligible for FHA-insured financing under standard FHA policy.
The FHA minimum is not a guarantee of approval. A lender may require a higher score based on its underwriting standards and the rest of your application.
See the full guide to the minimum FHA down payment for information about acceptable funding sources.
Documented Income and Employment
You need enough stable and documented income to support the proposed mortgage payment and your other monthly debts.
Depending on how you earn income, the lender may request pay stubs, W-2s, tax returns, bank statements, profit-and-loss statements or employment verification.
You do not necessarily need traditional salaried income. Borrowers who do not receive a W-2 and self-employed borrowers may qualify when their income can be documented under FHA and lender requirements.
Debt-to-Income Ratio
Debt-to-income ratio, or DTI, compares your monthly debt obligations with your gross monthly income.
FHA does not use one maximum DTI for every borrower and every loan. The acceptable ratio depends on the underwriting method, credit history, cash reserves and other factors in the application. Individual lenders may also apply stricter limits.
Primary Residence Requirement
FHA purchase loans generally finance a principal residence rather than a vacation home or rental-only investment property.
At least one borrower must generally occupy the property as a principal residence within 60 days of signing the mortgage documents and intend to continue living there for at least one year.
An FHA loan can finance a property with up to four units when the borrower occupies one unit as a principal residence and the property meets the applicable requirements.
FHA Appraisal and Property Requirements
The property requires an appraisal completed by an FHA-approved appraiser. The appraisal provides an opinion of value and evaluates whether the property meets FHA minimum property requirements and standards.
An appraisal can identify conditions that require further inspection or repair before the loan is eligible for FHA insurance. The appraisal does not replace a home inspection, which is a separate evaluation ordered for the buyer’s information.
FHA Loan Limits
FHA loan limits establish the maximum base mortgage amount available under the program. Limits vary by county, property type and number of units and are updated periodically.
You can use HUD’s FHA mortgage limits lookup tool to find the current limit for a specific location.
FHA Mortgage Insurance and Other Costs
FHA loans generally require an upfront mortgage insurance premium and an annual mortgage insurance premium.
Upfront Mortgage Insurance Premium
The upfront mortgage insurance premium, or UFMIP, is generally 1.75% of the base loan amount for an FHA purchase or standard refinance.
You can generally pay the premium at closing or finance it into the mortgage. Financing it reduces the cash needed at closing but increases the loan balance.
Annual Mortgage Insurance Premium
The annual mortgage insurance premium, or MIP, is generally divided into monthly installments and included in the mortgage payment.
Current annual MIP rates for standard FHA forward mortgages generally range from 0.15% to 0.75% of the base loan amount, depending on the loan term, amount and loan-to-value ratio.
For FHA case numbers assigned on or after June 3, 2013:
- Annual MIP generally applies for the loan term, or up to 30 years, when the original loan-to-value ratio is greater than 90%.
- Annual MIP generally applies for 11 years when the original loan-to-value ratio is 90% or less.
A purchase made with the minimum 3.5% down payment generally begins above 90% loan-to-value, so annual MIP typically applies for the full loan term unless the mortgage is paid off or refinanced.
See FHA mortgage insurance removal and mortgage insurance requirements by loan type for more detail.
Closing Costs
FHA closing costs vary by lender, loan amount, property and location. They can include lender fees, appraisal charges, title services, recording fees, prepaid interest, property taxes and homeowners insurance.
FHA permits sellers and other interested parties to contribute up to 6% of the sales price toward eligible closing costs, prepaid items, discount points and certain other financing expenses. Those contributions cannot be used to satisfy the borrower’s minimum required investment.
FHA Loans vs. Conventional Loans
FHA and conventional loans have different underwriting, occupancy and mortgage insurance rules. The lower down-payment option is not automatically the least expensive option over time.
| Feature |
FHA Loan |
Conventional Loan |
| Backing |
Insured by the FHA |
Not insured by a federal mortgage program |
| Low Down-Payment Option |
3.5% with a qualifying credit score of at least 580 |
Some programs permit down payments as low as 3%, subject to eligibility |
| Mortgage Insurance |
Upfront and annual MIP generally apply |
Private mortgage insurance may apply when the down payment is below 20% |
| Occupancy |
Generally limited to a principal residence |
Can finance primary residences, second homes or investment properties under applicable rules |
Compare the programs in more detail with the guide to FHA vs. conventional loans or use the FHA vs. conventional loan calculator to compare estimated payments and costs.
FHA Loans vs. Other Government Loan Programs
FHA loans do not have the military-service eligibility rules that apply to VA loans or the income and location restrictions that apply to USDA loans.
USDA loans may allow eligible borrowers to purchase eligible rural and suburban properties without a down payment. VA loans may provide no-down-payment financing to eligible service members, veterans and certain surviving spouses.
FHA loans require a down payment but are available across a broader range of locations and do not require military eligibility.
Common Types of FHA Loans
FHA Purchase Loan
The standard FHA purchase mortgage finances an eligible primary residence. It can be used for many one- to four-unit homes, including certain condominiums and manufactured homes that meet FHA requirements.
FHA 203(k) Rehabilitation Loan
An FHA 203(k) loan combines the cost of purchasing or refinancing a home with eligible renovation expenses in one mortgage. The property and planned work must meet program requirements.
FHA Streamline Refinance
An FHA Streamline refinance allows eligible borrowers with an existing FHA loan to refinance using a simplified process. The transaction must provide a qualifying benefit and meet FHA requirements.
FHA Cash-Out Refinance
An FHA cash-out refinance replaces an existing mortgage with a larger FHA loan and provides the borrower with part of the home equity in cash. Credit, appraisal, equity and occupancy requirements apply.
FHA Loan Benefits and Considerations
| Potential Benefits |
Considerations |
| Down payments as low as 3.5% for eligible borrowers |
Upfront and annual mortgage insurance generally apply |
| FHA policy accommodates credit scores below common conventional thresholds |
Individual lenders may require higher scores than the FHA minimum |
| Gift funds and qualifying down-payment assistance may be used |
The home must meet FHA property and appraisal requirements |
| Can finance an owner-occupied property with up to four units |
The loan generally cannot finance a vacation home or rental-only investment property |
| Interested parties may contribute toward eligible closing costs |
FHA loan limits may restrict the maximum mortgage amount in some markets |
The Bottom Line
An FHA loan is a mortgage made by a private lender and insured by the FHA. It can provide access to home financing with a down payment as low as 3.5% and credit standards that may be more flexible than some conventional options.
The tradeoffs include upfront and annual mortgage insurance, owner-occupancy rules, property requirements and county loan limits. Compare the full monthly payment, cash required at closing and long-term insurance costs with the other loan programs for which you qualify.
Frequently Asked Questions
What Are the Basic FHA Loan Requirements?
You generally need an eligible credit profile, documented income, enough funds for the down payment and closing, an acceptable debt-to-income ratio and a property that will serve as your principal residence. The home must also meet FHA appraisal and property requirements.
What Is the Minimum Down Payment for an FHA Loan?
The minimum down payment is generally 3.5% with a qualifying credit score of at least 580. Scores from 500 to 579 are limited to 90% loan-to-value, which generally requires 10% down. Lenders may set higher credit requirements.
Do You Have to Be a First-Time Buyer to Get an FHA Loan?
No. FHA loans are available to eligible first-time and repeat buyers. The property generally must be used as the borrower’s principal residence.
Can You Use an FHA Loan for an Investment Property?
An FHA purchase loan generally cannot be used for a rental-only investment property. You may use FHA financing to buy a property with up to four units when you occupy one unit as your principal residence and meet the applicable requirements.
How Long Does FHA Mortgage Insurance Last?
For current FHA loans, annual MIP generally lasts for the loan term, or up to 30 years, when the original loan-to-value ratio is greater than 90%. It generally lasts 11 years when the original loan-to-value ratio is 90% or less.
Can You Remove FHA Mortgage Insurance?
Borrowers generally cannot cancel annual MIP early based only on current home equity for FHA case numbers assigned on or after June 3, 2013. Depending on the original loan-to-value ratio, MIP ends after 11 years or continues for the loan term. Refinancing into another loan type may remove FHA MIP if you qualify and the refinance costs make financial sense.
Are FHA Loans Assumable?
FHA-insured forward mortgages are assumable, but the person taking over the mortgage generally must qualify and complete the required lender approval process.
What Is an FHA Streamline Refinance?
An FHA Streamline refinance is a refinance option for borrowers who already have an FHA-insured mortgage. It uses a simplified underwriting process and must meet FHA eligibility and benefit requirements.
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