FHA loans: Requirements, pros and cons, and how to get one
- 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.
FHA loans are often recommended for first-time homebuyers or those with less-than-stellar credit histories because they're often 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?
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.
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 if an FHA borrower defaults. This means that FHA loans are less risky for mortgage lenders, so lenders are able to offer lower rates and accept borrowers with lower scores.
FHA loan requirements 2023
Let's take a closer look at all the requirements you'll need to meet to qualify for an FHA loan.
FHA loan down payment requirements
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. If you want to get a loan with a lower score, you'll need to put more down. Borrowers can get an FHA loan with scores down to 500 as long as they have a 10% down payment.
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.
Credit score required for FHA loan
As we mentioned above, you'll either need a minimum 580 credit score or a minimum 500 credit score to qualify for an FHA loan, depending on how much you have for your down payment.
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.
FHA DTI requirements
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.
FHA mortgage insurance
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% |
Property and occupancy requirements
FHA loans can be used to purchase single-family homes 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.
FHA loan limits
The FHA restricts how much you can borrow. The limit depends on where you live and what type of property you buy.
In 2023, the mortgage limit "floor" for one-unit properties is $472,030, 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 $472,030. The mortgage limit "ceiling" this year is $1,089,300 for a one-unit property. This means that the maximum loan limit in high-cost areas is $1,089,300.
In 2024, these limits are higher: the low-cost area limit will be $498,257, and the ceiling will be $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.
FHA loan income requirements
The FHA doesn't specify a minimum or maximum income you'll need to qualify for one of its loans. Instead, you'll need to meet DTI requirements, since this more accurately shows how much money you have to spend on a mortgage each month.
When you apply for a mortgage, be prepared to supply recent paystubs, W-2s or 1099s, tax returns, and any other documentation that shows your monthly and yearly income.
FHA loan inspection requirements
Before a lender will approve you for an FHA loan, you'll need to get the house you're purchasing appraised.
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 FHA loans compare
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.
VA loans and USDA loans also often come with low monthly mortgage rates, and they require no down payment. And conventional mortgages are often more attractive for borrowers with good credit and larger down payments, since they won't pay as much for mortgage insurance.
Ultimately, the right type of mortgage for you comes down to your credit and finances.
| 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 | 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 |
Most common types of FHA loans
The FHA administers several types of home loans. See which one fits your homebuying situation.
Basic 203(b) FHA 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.
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 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.
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 203(k) mortgage
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.
The pros and cons of FHA loans
FHA loans are great options for many Americans, but they aren't for everyone. Here are some things to consider before you apply:
The pros of FHA loans
- 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 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.
The cons of FHA loans
- 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 whether PMI or MIP makes more sense 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 or a home in a certain area.
You may think you don't qualify to buy a home, but an FHA mortgage can make it possible even if your finances aren't as strong as you'd like.
How to get an FHA loan
Though FHA loans are insured by the federal government, you'll get your mortgage through a private lender.
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.