FHA loans: Definition, requirements and limits

An FHA loan helps borrowers with lower credit scores and down payment savings finance a home, sometimes at more affordable FHA loan rates. This type of mortgage is widely available from different types of lenders, including banks and independent mortgage companies. Here’s a complete guide.

What is an FHA loan?

An FHA loan is a type of mortgage insured by the Federal Housing Administration (FHA), which is overseen by the U.S. Department of Housing and Urban Development (HUD). While the government insures these loans, they’re underwritten and funded by FHA mortgage lenders. Many big banks and other types of lenders offer them.

FHA loans have a low minimum credit score and down payment requirement, which makes them especially popular with first-time homebuyers. You can get an FHA loan with a credit score as low as 580 if you have 3.5 percent of the home’s purchase price to put down, or as low as 500 with 10 percent down. These flexible underwriting standards are designed to help more borrowers become homeowners.

You can’t buy just any home with an FHA loan, however. You can’t use this loan to buy an investment property or vacation home. Based on your credit and finances, the lender determines how much mortgage you’d qualify for within the FHA loan limits for your area.

Who are FHA loans best for?

FHA loans are generally best for borrowers with lower credit scores, limited down payment savings or both. This might include first-time or younger homebuyers, or those with smaller incomes.

How do FHA loans work?

FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. There are two term options: 15 years or 30.

You’ll also pay closing costs for an FHA loan, such as appraisal and origination fees. The FHA allows home sellers, a home builder or a mortgage lender to cover up to 6 percent of these costs.

To insure these loans against default — that is, if you were to stop repaying your loan — the FHA requires borrowers to pay mortgage insurance premiums, or MIP. These go into the Mutual Mortgage Insurance Fund (MMIF), which helps cover loss claims. Although you’ll pay the premiums as the borrower, FHA mortgage insurance protects the lender — not you.

FHA loan requirements

Here’s an overview of the requirements for an FHA loan:

• FHA credit score: As low as 580 with a 3.5 percent down payment or as low as 500 with a 10 percent down payment
• FHA down payment: At least 3.5 percent down if your credit score is at least 580, or at least 10 percent down if your credit score is between 500 and 579
• FHA debt-to-income (DTI) ratio: At most 43 percent (up to 50 percent in some cases)
• FHA occupancy rules: Primary residences between one and four units
• FHA mortgage insurance premiums (MIP): An upfront premium of 1.75 percent of the loan principal, typically paid at closing; plus annual premiums between 0.15 percent and 0.75 percent depending on down payment and loan amount and term, typically paid monthly

FHA minimum credit score

If you put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you’ll need to make at least a 10 percent down payment. Keep in mind that the FHA sets this limit, but individual lenders might require a higher score.

FHA down payment

For an FHA loan, you’ll need a down payment of at least 3.5 percent. This minimum increases to 10 percent if your credit score is between 500 and 579.

FHA loans allow borrowers to use down payment funds from sources other than their savings, such as a gift from family. Borrowers might also be eligible for down payment assistance to help cover the cost.

FHA debt-to-income (DTI) ratio

To meet the DTI ratio requirements for an FHA loan, your combined monthly debt payments, including your mortgage, shouldn’t exceed 43 percent. No more than 31 percent of your income should go toward your mortgage payments.

That said, your lender could make exceptions for your overall DTI up to 45 percent, 50 percent or even 57 percent with an FHA loan, assuming you have mitigating factors like a lot of liquid assets or can make a sizable down payment.

FHA mortgage insurance

All FHA loans require you to pay mortgage insurance, which is split into two components:

• Upfront premium: 1.75 percent of the loan amount, which is paid either at closing or incorporated into the final loan amount
• Annual premiums: Amount varies based on down payment, loan amount and loan term

For example, if you’re an FHA borrower who opts for a 30-year term and a 3.5 percent down payment, you’ll pay 0.55 percent of the loan amount, divided by 12 and added to your monthly payment. That means if you borrow $300,000, you’ll pay $1,650 a year — or $137.50 monthly — for MIP.

FHA inspection and property requirements

FHA loans include a process in which a HUD-approved appraiser must assess the property to verify its market value and compliance with HUD’s basic property standards. These standards dictate that the property:

• Must be structurally sound with a solid foundation
• Must not have any significant defects or incomplete renovations
• Has adequate drainage and irrigation
• Provides a safe and livable environment with working heating, plumbing and electrical systems
• Has adequate lighting and ventilation in all rooms
• Is free of hazards inside and outside of the home

FHA loan limits

FHA loans have limits on how much you can borrow depending on the type of property you’re financing and where you’re buying.

In 2025, the FHA loan limit for a single-family home in most counties is $524,225, but it can be as high as $1,209,750 in higher-cost areas.

Multifamily properties have higher loan limits, ranging from $671,200 to $3,490,300, depending on the number of units and the location.

You can use HUD’s online search tool to find the limits in your area.

FHA loans vs. conventional loans

Conventional loans are the most popular type of mortgage. Unlike FHA loans, conventional mortgages are not insured by the government. Here’s a side-by-side comparison of the two:

If your credit score is on the lower side and you don’t need a very large loan, an FHA loan is likely the better option. If your credit is at least 620, though, you’re almost always better off with a conventional loan.

Types of FHA loans

There are several types of FHA loans, including:

• Basic home mortgage loan or 203(b) loan: The 203(b) loan is the FHA’s main home loan program for buying a home or refinancing. These loans come with fixed and adjustable-rate options, as well as a choice between 15- and 30-year terms.
• Rehabilitation mortgage or 203(k) loan: An FHA 203(k) loan covers the home’s purchase price and repairs. This type of FHA construction loan comes in Standard and Limited options, which differ based on the cost and type of home improvements you’re looking to make. It’s best for someone buying a fixer-upper or a home that otherwise needs some work.
• Disaster victims mortgage or 203(h) loan: If you’ve lost your home due to a major disaster and need to rebuild or buy a new home, an FHA 203(h) loan could help. There’s no down payment requirement, but you have to have been affected by a Presidentially designated disaster.
• Home equity conversion mortgage (HECM): A HECM is a reverse mortgage insured by the FHA that allows those over the age of 62 to tap the equity in their home as tax-free income. There are risks to a reverse mortgage, but it can be a helpful financial tool for those looking to supplement their income in retirement.
• Energy–efficient mortgage (EEM): This is a mortgage designed for the purchase of an energy-efficient home, or to upgrade a home to make it more energy-efficient. These upgrades might include insulation, solar panels, or energy-efficient appliances.
• Graduated payment mortgage or 245(a) loan: This uncommon type of mortgage comes with payments that start small and increase over time. They’re most often used by those who expect to make more money in the future.

Pros and cons of FHA loans

FHA loan FAQ

• Is an FHA loan right for you?

  An FHA loan can help you get into a home even with poor credit and limited savings for a down payment. For that reason alone, it’s worth considering. However, FHA loans can be costlier thanks to the mortgage insurance premiums. If you have a stronger credit score — at least 620 — you could qualify for a conventional mortgage even if you can’t put 20 percent down. On a conventional loan, you won’t have to pay mortgage insurance for the entire loan term — you can cancel PMI when you accumulate 20 percent equity in your home.

• How do I apply for an FHA loan?

  When you’re ready to apply for an FHA loan, start by confirming your eligibility for the program. If you meet the credit score and DTI requirements, use our affordability calculator to estimate your budget based on your income, expenses and down payment savings. The next step is to explore lenders, narrow down your list of options and apply for a loan. You’ll generally need to provide the past two years’ worth of tax returns, two of your most recent pay stubs, your driver’s license or other official identification and full statements of your assets (checking account, savings account, 401(k) and any other places you hold money).

• How do FHA loans compare to other loan types?

  Compared to conventional loans, FHA loans offer a more generous credit score threshold but similarly come with a mortgage insurance requirement. Compared to VA loans and USDA loans, FHA loans are open to anyone who qualifies. VA loans are only for active-duty military, veterans and surviving spouses, while USDA loans are only for low- to moderate-income homebuyers in certain rural areas.

• How do I get rid of FHA mortgage insurance?

  Everyone who gets an FHA loan pays mortgage insurance. If you put down 10 percent or more, you can get rid of FHA mortgage insurance after 11 years. If you put down less than 10 percent, you’ll pay mortgage insurance until you pay off the loan, sell the home or refinance to a conventional mortgage.