An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Because the government backs these loans against default, lenders can offer them with lower credit score requirements and smaller down payments than most conventional mortgages. You don’t apply to the FHA directly. Instead, you work with an FHA-approved lender (banks, credit unions, and online mortgage companies), and the FHA provides insurance that protects the lender if you stop making payments.
FHA loans are one of the most popular paths to homeownership for first-time buyers and borrowers with less-than-perfect credit. Here’s how they work, what they cost, and what you need to qualify.
Credit Score and Down Payment Requirements
The minimum credit score for an FHA loan is 500, which is significantly lower than the 620 or higher that most conventional loans require. However, your credit score determines how much you need to put down.
- Credit score of 580 or higher: You can put down as little as 3.5% of the purchase price. On a $300,000 home, that’s $10,500.
- Credit score between 500 and 579: You’ll need at least 10% down. On the same $300,000 home, that’s $30,000.
These are FHA minimums. Individual lenders sometimes set their own cutoffs higher, so one lender might require a 580 score while another accepts 550. Shopping multiple FHA-approved lenders is worth your time if your score is on the lower end.
How Mortgage Insurance Works
FHA loans require mortgage insurance, and this is one of the biggest differences from conventional loans. You’ll pay two types: an upfront premium and an annual premium.
The upfront mortgage insurance premium (UFMIP) is 1.75% of your loan amount, due at closing. On a $290,000 loan, that’s $5,075. Most borrowers roll this cost into the loan balance rather than paying it out of pocket, which means you’d actually be borrowing $295,075.
The annual mortgage insurance premium (MIP) is paid monthly as part of your regular mortgage payment. For a standard 30-year FHA loan of $726,200 or less with the minimum 3.5% down, the annual rate is 0.55% of the loan balance. On that $290,000 loan, you’d pay roughly $133 per month in MIP. Rates drop for borrowers who put more down or choose shorter loan terms. A 15-year loan with at least 10% down, for example, carries a rate of just 0.15%.
How long you pay MIP depends on your down payment. Put down less than 10%, and MIP stays for the entire life of the loan. Put down 10% or more, and it drops off after 11 years. This is a key distinction from conventional loans, where private mortgage insurance can be canceled once you reach 20% equity. If you start with a 3.5% down payment FHA loan, the only way to stop paying MIP is to refinance into a conventional loan once you’ve built enough equity and your credit has improved.
FHA Loan Limits
The FHA caps how much you can borrow, and the limit varies by location. For 2026, the floor for a single-family home in lower-cost areas is $541,287. In the most expensive housing markets, the ceiling reaches $1,249,125. Most counties fall somewhere in between based on local median home prices. You can look up your county’s specific limit on HUD’s website.
These limits adjust annually to reflect changes in home prices, so they tend to rise over time.
Property Standards and the FHA Appraisal
FHA loans come with stricter property requirements than conventional mortgages. The home must be your primary residence (not an investment property or vacation home), and it has to meet the FHA’s minimum health, safety, and structural standards. An FHA-approved appraiser will evaluate the property before the loan can close, and they’re checking for more than just market value.
The property must be free of hazards that affect occupant health or structural soundness. That includes toxic materials, excessive dampness, evidence of termites, foundation settlement, and inadequate drainage. Every living unit needs potable water, hot water, functioning sewage disposal, and a heating system capable of maintaining livable temperatures. The roof must be in good enough condition to prevent moisture intrusion and offer reasonable remaining life. Crawl spaces need to be clear of debris, properly vented, and accessible for inspection.
For homes built before 1978, the appraiser will inspect all surfaces for chipping, flaking, or peeling paint, which may contain lead. If defective paint is found, repairs become a condition of loan approval.
Safe pedestrian and vehicle access from a public or private street is also required, and the street must provide all-weather access for emergency vehicles. If the home relies on a private well or septic system instead of public utilities, those systems need to meet local health authority standards.
These requirements can slow down the buying process, especially with older homes or fixer-uppers. If the appraisal flags issues, the seller typically needs to make repairs before the loan can proceed, or the deal may fall through.
Who FHA Loans Work Best For
FHA loans fill a specific gap in the mortgage market. They tend to make the most sense for borrowers who have limited savings for a down payment, credit scores below the mid-600s, or higher debt relative to their income. The FHA allows a debt-to-income ratio (the percentage of your monthly income that goes toward debt payments) of up to 43%, and sometimes higher with compensating factors like cash reserves.
If your credit score is 720 or above and you can put down at least 5%, a conventional loan will often be the cheaper option because you’ll avoid the lifetime MIP that comes with low-down-payment FHA loans. The crossover point depends on your specific financial profile, so getting quotes for both loan types from the same lender is a straightforward way to compare total costs.
FHA Loan Types
The standard FHA loan (called a 203(b)) covers purchases of existing homes, but the FHA insures several other loan products as well. The FHA 203(k) loan lets you finance both the purchase of a home and the cost of renovations in a single mortgage, which is useful for properties that need significant work. FHA loans are available in fixed-rate and adjustable-rate versions, with terms of 15 or 30 years being the most common.
FHA Streamline Refinance
If you already have an FHA loan, the streamline refinance program lets you refinance with reduced paperwork and underwriting. You generally don’t need a new appraisal (unless the property is an investment), and the lender may not need to fully re-verify your income and credit. The catch is that the refinance must provide a “net tangible benefit,” meaning it needs to lower your monthly payment or move you from an adjustable rate to a fixed rate. You can’t take out more than $500 in cash, and closing costs cannot be rolled into the new loan balance. Your existing loan must be current with no late payments to qualify.
How to Apply
The application process mirrors a conventional mortgage in most ways. You’ll provide pay stubs, W-2s, tax returns, bank statements, and identification to your lender. The lender runs your credit, verifies your employment and income, and orders the FHA appraisal. From application to closing, the process typically takes 30 to 45 days, though FHA appraisal requirements can add time if the property needs repairs.
Not every lender offers FHA loans, and rates and fees vary between those that do. Getting pre-approved with two or three FHA-approved lenders gives you a realistic sense of your budget and ensures you’re getting a competitive rate. The FHA itself doesn’t set interest rates; your lender does, based on your credit profile and market conditions.