An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), designed to help buyers with lower credit scores or limited savings purchase a home by offering more flexible underwriting and low down-payment options.
Established in 1934 during the Great Depression, the FHA’s mission was to stabilize the housing market and make homeownership accessible. FHA mortgages have since enabled millions to achieve homeownership by reducing lenders’ risk.
FHA loans are backed by the U.S. Department of Housing and Urban Development (HUD). The FHA insures the loan, so if a borrower defaults, HUD reimburses the lender, encouraging lenders to offer favorable terms.
FHA loans require as little as 3.5% down for borrowers with credit scores of 580 or higher, while conventional mortgages typically demand 5–20%, depending on lender guidelines and borrower profile.
FHA programs accept credit scores as low as 500 (with a 10% down payment) and allow more recent credit events, whereas conventional loans usually require scores of 620 and above and stricter credit histories.
FHA loans carry both an up-front and annual MIP, while conventional loans require PMI until 20% equity is reached.
Borrowers with a credit score of 580 or higher qualify for the 3.5% down payment; scores between 500 and 579 require 10%. Recent bankruptcies or foreclosures may be considered on a case-by-case basis.
Lenders look for stable employment history (at least two years) and a DTI ratio below 43% in most cases, though some lenders allow higher limits with compensating factors.
Homes must meet FHA’s Minimum Property Standards and be used as the borrower’s primary residence within 60 days of closing. Multi-unit properties up to four units are eligible if occupancy requirements are met.
Gift funds from family or approved down-payment assistance programs are allowed for the down payment and closing costs, provided proper documentation accompanies the source of funds.
Lenders assess income, credit score, assets and DTI to issue a pre-approval letter that estimates how much you can borrow.
You’ll need recent pay stubs, W-2 forms, bank statements and government-issued ID to verify income, assets and employment.
Only FHA-approved lenders can underwrite and fund FHA loans. Compare rates and fees from multiple lenders for the best terms.
The process typically takes 30–45 days, including appraisal, underwriting and final loan approval before closing day.
FHA loan limits vary by county based on local median home prices. For example, in 2025 Florida limits range from $524,225 to $967,150 for single-family homes.
Borrowers pay a UFMIP of 1.75% of the loan amount at closing, which can be rolled into the loan balance or paid in cash.
The annual MIP rate ranges from 0.45% to 1.05% of the loan balance, divided into monthly payments as part of the mortgage payment.
Closing costs for FHA loans average 2%–5% of the purchase price, covering appraisal fees, title insurance, lender fees and other third-party costs.
A minimum score of 580 is required for the 3.5% down payment; scores 500–579 need 10% down.
At least 3.5% of the purchase price (with a 580+ credit score), or 10% for lower scores.
Yes, FHA loans are assumable by qualified buyers, and options include rate-and-term or streamline refinancing.
No income limits exist, but properties must meet FHA standards and serve as your primary residence.
Underwriting typically takes 1–3 weeks, depending on documentation completeness and lender workload.
VA loans offer no-down-payment options and no mortgage insurance for eligible veterans, but require a VA funding fee; FHA loans are open to all borrowers and carry MIP.
USDA loans provide zero-down financing in eligible rural areas with income limits, whereas FHA loans are available nationwide with a minimum down payment.
Consider an FHA loan if you have a lower credit score, need a minimal down payment or plan to buy ineligible VA/USDA regions.
Use HUD’s lender search tool or contact local banks and credit unions to compare FHA loan rates, fees and customer service.
Utilize mortgage calculators to estimate payments and DTI tools to understand your borrowing capacity before applying.
Compile a checklist of W-2s, tax returns, bank statements and IDs to streamline your FHA loan application process and avoid delays.
