A HUD mortgage is a home loan insured by the Federal Housing Administration (FHA), which operates as part of the U.S. Department of Housing and Urban Development (HUD). HUD doesn’t lend money directly to homebuyers. Instead, the FHA insures loans made by private lenders, protecting those lenders against losses if a borrower defaults. This government backing is what allows lenders to offer more flexible qualification standards, lower down payments, and competitive interest rates compared to conventional mortgages.
When people search for “HUD mortgage,” they’re almost always looking for information about FHA loans. These are by far the most common home financing programs that HUD oversees, and they’re designed to make homeownership accessible to buyers who might not qualify for a conventional loan.
How FHA Loan Insurance Works
The core idea behind an FHA loan is risk sharing. You borrow from a bank, credit union, or mortgage company, not from the government. But the FHA promises to cover the lender’s losses if you stop making payments. Because of that guarantee, lenders are willing to approve borrowers with lower credit scores, smaller down payments, and higher debt levels than they’d normally accept.
You pay for this insurance through two separate charges. The first is an upfront mortgage insurance premium (UFMIP) of 1.75% of your loan amount, due at closing. On a $300,000 loan, that comes to $5,250. Most borrowers roll this cost into the loan balance rather than paying it out of pocket. The second charge is an annual mortgage insurance premium (MIP), paid monthly as part of your mortgage payment. For a typical 30-year loan with less than 10% down, the annual MIP runs 0.85% of your loan balance, which adds roughly $212 per month on that same $300,000 loan.
How long you pay the annual MIP depends on your down payment. If you put down less than 10%, the MIP stays for the entire life of the loan. If you put down 10% or more, it drops off after 11 years. This is a key difference from conventional loans, where private mortgage insurance can be canceled once you reach 20% equity. Many FHA borrowers eventually refinance into a conventional loan to eliminate the ongoing premium.
Credit Score and Down Payment Requirements
FHA loans have a tiered system that links your credit score to the minimum down payment you’ll need:
- Credit score of 580 or higher: You qualify for maximum financing, which means a down payment as low as 3.5% of the purchase price.
- Credit score between 500 and 579: You can still get an FHA loan, but you’ll need at least 10% down.
- Credit score below 500: You’re not eligible for FHA-insured financing.
These are FHA minimums. Individual lenders often set their own thresholds higher, with many requiring a 620 or even 640 score. If one lender turns you down, it’s worth applying elsewhere since approval standards vary. Beyond credit scores, lenders will also evaluate your income, employment history, and debt-to-income ratio, which measures how much of your monthly income goes toward debt payments.
2026 FHA Loan Limits
FHA loans have a maximum amount you can borrow, which varies based on where you’re buying and the size of the property. For 2026, the limits for a single-family home range from $541,287 in lower-cost areas to $1,249,125 in the most expensive markets. Your county’s specific limit falls somewhere in that range based on local median home prices.
If you’re buying a multi-unit property (which FHA allows for up to four units, as long as you live in one), the limits are higher. A two-unit property caps at $693,050 to $1,599,375, a three-unit at $837,700 to $1,933,200, and a four-unit at $1,041,125 to $2,402,625. You can look up the exact limit for your county on HUD’s website.
Types of HUD Mortgage Programs
The standard FHA purchase loan is the most widely used, but HUD oversees several specialized programs worth knowing about.
FHA 203(k) Rehabilitation Loan
This program lets you finance both the purchase of a home and the cost of renovating it in a single mortgage. It’s designed for buyers interested in fixer-uppers who don’t want to take out a separate construction loan. The 203(k) comes in two versions: a “limited” option for cosmetic updates and minor repairs (capped at $35,000 in renovation costs), and a “standard” option for major structural work with no fixed dollar cap beyond the area’s loan limit.
FHA Streamline Refinance
If you already have an FHA loan and want to lower your interest rate, the streamline refinance simplifies the process. It typically requires less paperwork than a standard refinance, often skipping the home appraisal and income verification. You generally need to have made at least six monthly payments on your current FHA loan and be current on your mortgage.
Section 184 Indian Home Loan Guarantee
This program serves American Indians and Alaska Natives who are members of a federally recognized tribe. Section 184 loans can be used on or off tribal lands for purchasing an existing home, new construction, rehabilitation, or refinancing. The loans are limited to single-family properties (one to four units) with fixed interest rates and terms up to 30 years. Adjustable-rate mortgages are not available under this program. Borrowers work with a participating lender, and the loan goes through HUD’s Office of Loan Guarantee for approval.
Manufactured Home Loans
HUD also insures loans for manufactured housing through its Title I program, covering homes that meet HUD construction and safety standards. This fills a gap since many conventional lenders won’t finance manufactured homes or offer less favorable terms.
Who Benefits Most From an FHA Loan
FHA loans are often associated with first-time homebuyers, and for good reason. The 3.5% down payment requirement is one of the lowest available, and the credit score flexibility opens doors for people still building their credit history. But there’s no first-time buyer requirement. Anyone who meets the eligibility criteria can use an FHA loan, including repeat buyers and people who’ve gone through foreclosure or bankruptcy (after a waiting period).
The tradeoff is cost. Mortgage insurance on an FHA loan is generally more expensive than private mortgage insurance on a conventional loan, especially for borrowers with good credit. If your score is above 720 and you can put 10% or more down, a conventional loan will almost always cost less over time. FHA loans tend to be the better deal for buyers with credit scores in the 580 to 680 range, limited savings for a down payment, or higher debt-to-income ratios that would disqualify them from conventional financing.
How to Apply for an FHA Loan
The process mirrors a conventional mortgage application with a few additions. You’ll need standard documentation: pay stubs, W-2s or tax returns, bank statements, and identification. The lender will pull your credit report and verify your employment. One FHA-specific requirement is that the home must be your primary residence. You can’t use an FHA loan for investment properties or vacation homes.
The property itself must also pass an FHA appraisal, which is slightly more rigorous than a conventional appraisal. The appraiser checks for health and safety issues like peeling paint, faulty wiring, roof damage, and adequate water and heating systems. If the home doesn’t meet FHA’s minimum property standards, repairs may need to be completed before the loan can close.
Not every lender offers FHA loans, so confirm that your lender is FHA-approved before you start the application. Shopping around is especially worthwhile with FHA loans since interest rates, lender fees, and credit score requirements can vary significantly from one lender to the next.