FHA Loan Requirements: FHA Loans Explained

What are FHA Loans?

FHA loans are mortgages that are provided by private lenders, but insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). This means that if a borrower defaults on an FHA-backed loan, the FHA will reimburse the lender for the loan’s unpaid principal balance.

Because FHA-approved lenders are taking less risk when they fund an FHA loan, they can offer this type of mortgage to borrowers who have lower credit scores, or who don’t have much saved for a down payment. FHA loans are especially popular with first-time homebuyers.

Consequently, you should have a clear financial goal in mind that makes up for the time and expense of mortgage refinancing.

FHA Loan Requirements

FHA mortgage requirements can vary by lender, but the basic FHA mortgage loan requirements include:

Credit Score and Down Payment

Generally, the FHA requires a 580 credit score with a minimum down payment of 3.5% to qualify for an FHA loan. If you can make a larger down payment — at least 10% — you may be able to find a lender who will accept a lower score (in the 500-579 range), but your interest rate and other terms may be less favorable.

Income Requirements

There is no set income requirement to get an FHA mortgage. It will be up to individual lenders to determine if your income, and income sources, are sufficient to qualify for a loan. Borrowers should expect to provide documentation that may include recent pay stubs, W-2 statements, bank statements, and income tax returns.

If you meet these refinancing mortgage requirements, you’re ready to start the qualification process.

How to Qualify for Mortgage Refinancing

You’re ready to apply, but how does mortgage refinancing work? You can check your eligibility and request lender quotes before you get too far into the application. The mortgage preapproval process is an evaluation with a lender that looks at your credit and income to determine whether or not you meet the mortgage refinance requirements.

You can also look at different types of mortgages and cash-out options with estimated monthly payments before you go through underwriting. Once you have a loan quote you like and the loan officer is confident in your preapproval, your application moves to the underwriting process.

Debt-to-Income (DTI) Ratio

Besides your credit score and income, lenders will look at your debt-to-income ratio, which compares your monthly debt payments with your monthly gross income. FHA guidelines generally allow a DTI ratio up to 43%. But if you have a strong credit score and meet other requirements, lenders may allow a DTI ratio of up to 50% on an FHA loan.

Property Requirements

You can only use FHA home loans to buy an owner-occupied property with up to four units. The property can’t be purchased solely as an investment property, and it can’t be a second home. (You must occupy the property within 60 days of closing.)

When you find the home you want to purchase, it must be appraised inside and out by an FHA-approved appraiser. The appraiser will assess the property’s market value and make sure it is safe and meets minimum standards.

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FHA Loan Limits

Each year, there are updated FHA guidelines on the maximum amount you can borrow based on housing costs and the cost of living in your region. The value of the property you plan to purchase (which is determined by your appraisal) must fall within these specific limits.

The following are the 2025 loan limits in most areas of the U.S.:

  Single-unit property: $524,225

  Two-unit property: $637,950

  Three-unit property: $771,125

  Four-unit property: $958,350

Limits in higher-cost areas range from $1,209,750 (for a single-unit property) to $2,211,600 (for a four-unit property). In Alaska, Hawaii, Guam, and the U.S. Virgin Islands, limits range from $1,724,725 (for a single-unit property) to $3,317,400 (for a four-unit property).

If you’re curious about the loan limits in a specific area, you can search HUD’s FHA Mortgage Limits database.

How Does an FHA Loan Work?

A mortgage is a big commitment, so it’s important to do your due diligence before deciding what type of financing to get. Here are some points about how FHA loans work to keep in mind:

Loan Length

The most common term (or repayment period) for an FHA loan is 30 years, but a 15-year term is also available. If you want to pay off your home faster and can afford a higher monthly payment, the shorter-term loan will save you interest, and you’ll build home equity faster. But the monthly payments on a longer loan will be more affordable.

Interest Rate

Most FHA home loans come with a fixed interest rate, which means your interest rate will stay the same for the entire repayment period. Interest rates can be lower with an FHA-insured mortgage than with a conventional one, because FHA loans are a lower risk for lenders, but your creditworthiness (credit score, DTI, income, etc.) will also affect the rate you’re offered.

Down Payment

FHA loans are available with down payments as low as 3.5% (as long as you have a credit score of 580 or higher), which is a plus for buyers who can afford monthly payments but don’t have enough saved for a big down payment. Your lender can help you decide if a higher down payment is right for you, and how it could affect monthly payments and other aspects of your loan.

Another plus: Under FHA guidelines, 100% of your down payment can come from a no-strings-attached gift. (Rules for down payment gifts can vary with conventional loan lenders.) You also may be able to combine a first-time homebuyer assistance program with an FHA loan to lower your out-of-pocket costs.

Mortgage Insurance

No matter how big your down payment is, with an FHA loan, you must pay mortgage insurance.

FHA loans require an upfront mortgage insurance premium (MIP) of 1.75% of the base loan amount, which can be rolled into the loan. There’s also an annual premium, which is divided by 12 and added to your monthly payment.

The cost of the annual premium will depend on your loan amount, your down payment, and the length of your loan. Currently, the annual MIP rate for new homebuyers is 0.15% to .75% of the total loan amount, and most borrowers can expect to pay around 0.55%.

If you get a 30-year FHA loan and put 3.5% down, you’ll be paying MIP for as long as you have the loan. (Some FHA borrowers eventually refinance to a conventional loan, which allows them to eliminate the monthly MIP.) If you put down at least 10%, you’ll pay MIP for 11 years.

Types of FHA Loans

The FHA’s popular program for homebuyers who wish to purchase a home with the intention of using it as their primary residence is called the Section 203(b) Basic Home Mortgage Loan. Though most FHA loans are fixed-rate loans, the FHA does insure adjustable-rate mortgage products under its Section 251 Adjustable-Rate Mortgage program. Rates reset three, five, seven, or 10 years into the loan.

The FHA also insures several other different types of loans, including the Section 203(k) Rehabilitation Mortgage. This loan program enables homebuyers to finance up to $35,000 in improvements to their home.

There’s also a Home Equity Conversion Mortgage (HECM), which is a reverse mortgage for those who are 62 and older, and an FHA Energy Efficient Mortgage for borrowers who want to finance energy-efficient improvements and save money on their energy bills. Streamline Refinancing is an option for existing FHA borrowers who want to refinance their loans with streamlined underwriting.

How Is an FHA Loan Calculated?

If you know the home price, down payment amount, loan term, and interest rate, you can use an online FHA Loan Calculator to estimate your basic FHA loan payment. (Or you can play around using different numbers.)

For example, let’s say your home purchase price is $300,000, your down payment is $10,500 (3.5%), the loan term is 30 years, the interest rate is 6.00%, your upfront MIP is $5,066, and your annual MIP is $133. In this scenario, your monthly payment (without homeowner’s insurance premiums, HOA fees, property taxes, etc.) would be about $1,745. The total cost of the mortgage would be approximately $633,354, and the total interest paid would be $343,854.

How Much Can You Borrow With an FHA Loan?

A few different factors will go into determining the actual amount you can borrow with an FHA loan, including:

•   Down payment: If you qualify for the minimum down payment allowed (3.5%), you may be able to borrow up to 96.5% of the purchase price of a home with an FHA loan.

•   Loan limits: As mentioned above, there are preset loan maximums that are based on housing costs in your region. While these amounts are adjusted to reflect costs in various parts of the U.S., FHA loan maximums may not be as high as those allowed with a conventional loan.

•   Financial factors: Lenders also will look at your credit score, income, and DTI ratio when deciding how much you can borrow. The standard FHA DTI maximum is 43%, but you may be allowed to borrow more if you have “compensating factors,” such as an especially strong credit score, other assets, or a very large down payment.

How to Apply for an FHA Loan

The process of applying for an FHA loan is much like getting a conventional loan. But remember: Even though the federal government backs this loan program, it doesn’t provide the funds. So your first step is to find an FHA-approved lender that can offer you a loan that fits your needs. You can search for a lender on the HUD website, or hop online to do some research and compare lenders and their terms. Consulting an FHA loan buyers guide can be helpful.

When you find a lender, you’ll have to file a formal application and provide information about yourself and the home you hope to buy.

If you meet the requirements set by your lender and the FHA, you can expect to be approved for your loan. You’ll go through the closing process — including paying any closing costs — and receive the keys to your home.

Pros and Cons of an FHA Loan

An FHA-insured mortgage can be a solid option for borrowers who might otherwise struggle to qualify for a home loan because FHA loan qualifications are more lenient. But it’s important to understand the benefits and downsides to this type of financing:

Who Should Get an FHA Loan

Homebuyers with mediocre credit or a minimal amount saved for a down payment may be good candidates for an FHA loan. First-time homebuyers may find an FHA loan offers their best chance to get their foot in the door of their own home.

How to Use an FHA Loan

You can use an FHA loan to buy, build, improve, or refinance the home you plan to live in. Once you have an FHA loan and purchase your home, you make your monthly mortgage payment just as you would with a conventional loan.

FHA Loan Examples

Here are a couple of examples of how an FHA loan might work for some hypothetical homebuyers.

Example 1: Joe and Ginny Smith – First-Time Homebuyers

The Smiths have been married for two years and want to purchase their first home. Both have good jobs and solid income potential for the future, but their credit scores (580 and 600 respectively) are lower than most lenders will accept for a conventional loan, and they have some student loan debt. They don’t have much saved to put a down payment on the $350,000 house they want to buy, but Ginny’s mom is gifting them $12,500 for that purpose. Here’s an estimate of how their FHA loan might break down if they have a 30-year mortgage at 6.50% interest:

  Home purchase price: $350,000

  Down payment amount: $12,500 (3.5%)

  Loan period: 30 years

  Interest rate: 6.50%

  Monthly payment amount (without taxes, homeowner’s insurance, HOA fees, etc.): $2,145

  Total interest paid: $440,593

  Total cost of mortgage before MIP: $778,093

  Upfront FHA MIP: $5,906 Monthly FHA MIP: $155 (paid for the life of the loan)

Example 2: Ben Jones – Longtime Renter Turned Homeowner

After declaring bankruptcy a few years ago and struggling to get his credit score up to 600, Ben is getting his financial life in order. He doesn’t mind living in a multi-family building, but he’s tired of paying rent and he wants to invest in (and make the rules for) his own property. After inheriting some money, he has enough for a decent down payment (about $50,000), and he finds a duplex for $450,000. He wants to live in one half of the building and rent the other unit for income to help make his monthly payment — which is allowed with an FHA loan. Here’s an estimate of how Ben’s FHA loan would break down if he gets a 30-year loan at 6.50% interest:

  Home purchase price: $450,000

  Down payment amount: $50,000 (11%)

  Loan period: 30 years

  Interest rate: 6.50%

  Monthly payment amount (without taxes, homeowner’s insurance, HOA fees, etc.): $2,542

  Total interest paid: $522,184

  Total cost of mortgage before MIP: $922,184

  Upfront FHA MIP: $7,000 Monthly FHA MIP: $183 (paid for 11 years because Ben put more than 10% down)

How Much Does It Cost to Get an FHA Loan?

FHA closing costs can vary significantly depending on the lender and location, but borrowers should plan to pay between 2% and 6% of the home’s purchase price. (That’s on top of the down payment amount.)

You may be able to roll some of these costs into your overall loan amount to avoid paying them upfront. And some costs may be negotiable. (It can’t hurt to ask!) You may even be eligible for a down payment assistance program that can help with closing costs — especially if you qualify as a first-time homebuyer.

FHA Loan closing costs may include:

•   Upfront MIP (1.75% of the loan principal)

•   Lender fees, which may include an application fee (paid when you apply), loan origination fee, processing or underwriting fee, document preparation fee, and points paid in advance to reduce the interest rate

•   Third-party fees, which can include an appraisal fee, title search, and title insurance fees

•   Per diem interest, which is the interest a mortgage lender may charge for the days between your closing date and the first day of the billing cycle for your new home

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How to Find Competitive FHA Loan Rates

Because lenders’ rates and other terms can vary, it can make sense to shop around. It’s easy to check interest rates and other loan terms from a variety of lenders online. It’s also important to pay attention to lender fees, which can add to the overall cost of your loan. Read lender reviews, and ask family, friends, or your real estate professional for their recommendations.

Getting prequalified or going through the mortgage preapproval process can also give you a good idea of the loan terms you’ll qualify for.

And to get the most competitive loan offers, you’ll want to be sure your credit score, DTI ratio, and other personal financial details are in the best shape possible when you apply.

What Are FHA Loan Rates Expected to Do in 2025?

Mortgage rates can fluctuate for various reasons, including changes in the overall economy, inflation, and shifts in the financial markets. And though the Federal Reserve doesn’t set mortgage rates, when it raises or lowers its benchmark interest rate, those decisions can influence the interest rate homebuyers pay.

So if inflation continues to cool and the Fed lowers rates — as many economists are predicting — borrowing costs on many types of loans, including FHA mortgages, may drop.

That doesn’t necessarily mean you should wait for rates to go down. If you’re ready to buy and you can find the home you want at a price you can afford and qualify for a mortgage, you may want to talk to a financial professional about what makes the most sense for you.

What Are FHA Loan Rates Expected to Do in 2025?

Mortgage rates can fluctuate for various reasons, including changes in the overall economy, inflation, and shifts in the financial markets. And though the Federal Reserve doesn’t set mortgage rates, when it raises or lowers its benchmark interest rate, those decisions can influence the interest rate homebuyers pay.

So if inflation continues to cool and the Fed lowers rates — as many economists are predicting — borrowing costs on many types of loans, including FHA mortgages, may drop.

That doesn’t necessarily mean you should wait for rates to go down. If you’re ready to buy and you can find the home you want at a price you can afford and qualify for a mortgage, you may want to talk to a financial professional about what makes the most sense for you.

FHA Loan vs Conventional Loan

FHA and conventional mortgages have a few key differences that you’ll want to check out when you’re deciding which is right for you. Some points to consider when you’re looking at an FHA loan vs. a conventional mortgage include:

Credit Score and Down Payment Requirements

FHA loans are generally considered to be easier to qualify for than conventional loans. FHA borrowers typically need a credit score of 580 to be eligible to make a 3.5% down payment. And even with a lower score — in the 500 to 579 range — they may qualify with a 10% down payment.

In comparison, some lenders offer conventional mortgages with a down payment as low as 3%, but borrowers typically must have a credit score of 620 or higher to qualify for this amount.

Mortgage Insurance Requirements

Mortgage insurance is mandatory with an FHA loan, regardless of the down payment amount. If you get a 30-year FHA loan with a 3.5% down payment, you’ll be paying MIP for as long as you have the loan (unless you refinance to a conventional loan). If you put down at least 10%, you’ll pay MIP for 11 years. With a conventional loan, you’re only required to have private mortgage insurance (PMI) if your down payment is less than 20%. And the insurance can be canceled once you have at least 80% equity in your home. Understanding PMI vs. MIP is important as you weigh the choice of loan options.

Loan Limits

Both conventional and FHA loans limit the amount a homebuyer can borrow, and these maximum loan sizes can vary by region.

In most areas of the U.S., the 2025 FHA loan limit for a single-family home is $524,225, but the maximum in more expensive markets can go as high as $1,209,750.

Conventional loans are subject to the conforming loan limit set by the Federal Housing Finance Agency. For 2025, that limit is $806,500 for most areas of the U.S., with a ceiling of $1,209,750 in more expensive regions. Mortgages that exceed that threshold are considered nonconforming jumbo loans and are subject to more stringent underwriting standards.

Property Requirements

FHA-insured loans also have stricter property requirements, designed to protect both borrowers and lenders. While appraisals for conventional loans focus primarily on the property’s market value, an FHA appraisal will also check the property for safety, sound construction, and adherence to code restrictions. The purchased home also must be the borrower’s primary residence.

Mortgage Rates

Mortgage rates for FHA loans are typically lower than the rates for conventional loans. But because FHA loans require MIP, often for the life of the loan, borrowing with an FHA loan may cost more overall.

Alternatives to an FHA Loan

FHA loans and conventional loans are just two among the many different types of mortgage loans available to homebuyers. Other loan programs that can provide competitive rates and mortgage terms for borrowers include:

•   VA loans: A loan guaranteed by the U.S. Department of Veterans Affairs can be an excellent option for eligible members of the U.S. military and surviving spouses. There are no income limits on VA loans, and there are no longer standard loan limits on VA direct or VA-backed home loans.

•   USDA loans: These loans are guaranteed by the U.S. Department of Agriculture and are meant to help moderate- to low-income borrowers buy homes in eligible (typically rural) areas. Loan limits and income limits are based on the home’s location.

•   First-time homebuyer programs: If you have the resources to manage a higher monthly payment but you need some help with your down payment, there are many local, state and federal down payment assistance programs that can help. There may be limits on how much an eligible home can cost, or on the homebuyer’s income, but it’s worth checking out what’s available.

The Takeaway

If you’re worried about qualifying for a home mortgage loan because your credit isn’t exactly stellar or you don’t have much saved for a down payment, an FHA-insured loan might be right for you. Because FHA-approved lenders are taking less risk when they fund a government-backed FHA loan, FHA loan qualifications for borrowers are typically more lenient and interest rates may be lower

There are some downsides to FHA loans, however, including the requirement that borrowers pay mortgage insurance, which can make the loan more expensive over time. To find a mortgage and monthly payment that’s a good fit for you — whether it’s an FHA loan, a conventional loan, or some other option — it’s a good idea to research and compare what various lenders have to offer. And if you have questions, you can seek advice from a qualified mortgage professional.